<PAGE>
As filed with the Securities and Exchange Commission on June 16, 1995
1933 Act Registration No. 33-87254
1940 Act Registration No. 811-8764
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. [_]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 2 [X]
(Check appropriate box or boxes.)
Managed Accounts Services Portfolio Trust
(Exact name of registrant as specified in charter)
1285 Avenue of the Americas
New York, New York 10019
(Address of principal executive offices)
Registrant's telephone number, including area code: (212) 713-2000
Gregory K. Todd, Esq.
Mitchell Hutchins Asset Management Inc.
1285 Avenue of the Americas
New York, New York 10019
(Name and address of agent for service)
Copies to:
ARTHUR J. BROWN, Esq. PHILIP J. FINA, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP
1800 M Street, N.W. One International Place
Suite 900, South Lobby Boston, MA 02110-2637
Washington, D.C. 20036 Telephone: (617) 261-3100
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: As soon as practicable after
this Registration Statement becomes effective.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, an indefinite
number of shares of beneficial interest is being registered by this Registration
Statement.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Managed Accounts Services Portfolio Trust
-----------------------------------------
Contents of Registration Statement
----------------------------------
This Registration Statement consists of the following papers and documents:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Managed Accounts Services Portfolio Trust
- -----------------------------------------
Part A - Prospectus
Part B - Statement of Additional Information
Part C - Other Information
Signature Page
Exhibits
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
-----------------------------------------
Form N-1A Cross Reference Sheet
<TABLE>
<CAPTION>
Part A Item No.
and Caption Prospectus Caption
--------------- ------------------
<C> <S> <C>
1. Cover Page.................................. Cover Page
2. Synopsis.................................... Prospectus Summary
3. Condensed Financial Information............. Performance Information
4. General Description of Registrant........... Prospectus Summary; Investment Objectives and
Policies of the Portfolios and Risk Factors; General
Information
5. Management of the Fund...................... Management; General Information
5A. Management's Discussion of Fund
Performance................................. Not applicable
6. Capital Stock and Other Securities.......... Cover Page; Dividends and Taxes; General
Information
7. Purchase of Securities Being Offered........ Purchases; Exchanges; Valuation of Shares; Other
Services and Information; Management
8. Redemption or Repurchase.................... Redemptions; Other Services and Information
9. Pending Legal Proceedings................... Not Applicable
Part B Item No. Statement of Additional
and Caption Information Caption
--------------- -----------------------
10. Cover Page.................................. Cover Page
11. Table of Contents........................... Table of Contents
12. General Information and History............. Other Information
13. Investment Objectives and Policies.......... Investment Policies and Restrictions; Hedging and
Related Strategies; Portfolio Transactions
14. Management of the Registrant................ Trustees and Officers; Investment Management,
Advisory, and Distribution Arrangements
15. Control Persons and Principal Holders of
Securities.................................. Trustees and Officers
16. Investment Advisory and Other Services...... Investment Management, Advisory and Distribution
Arrangements; Other Information
17. Brokerage Allocation and Other Practices.... Portfolio Transactions
18. Capital Stock and Other Securities.......... Not applicable
19. Purchase, Redemption Pricing of Securities
Being Offered............................... Additional Exchange and Redemption Information;
Valuation of Shares
20. Tax Status.................................. Taxes
21. Underwriters................................ Investment Management, Advisory and Distribution
Arrangements
22. Calculation of Performance Data............. Performance Information
23. Financial Statements........................ Statements of Assets and Liabilities
[filed herewith]
</TABLE>
Part C
------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PROSPECTUS DATED JUNE , 1995
1285 Avenue of the Americas, New York, New York 10019
- --------------------------------------------------------------------------------
Managed Accounts Services Portfolio Trust (the "Trust") is an open-end,
management investment company currently composed of twelve separate no-load
investment portfolios (each a "Portfolio") managed by Mitchell Hutchins Asset
Management Inc. ("Mitchell Hutchins" or the "Manager"), a wholly owned
subsidiary of PaineWebber Incorporated ("PaineWebber"). Shares of the
Portfolios currently are available only to participants in the PaineWebber PACE
Program ("PACE Program"). The PACE Program and the Trust are designed to assist
you in devising an asset allocation strategy to meet your individual needs.
PaineWebber, through the PACE Program, provides investment advisory services in
connection with the allocation of assets among the Portfolios by: identifying
your risk tolerances and investment objectives based on information provided by
you; identifying and recommending, in writing, a suggested allocation of assets
among the Portfolios that conforms to those tolerances and objectives;
providing a monthly account statement; providing performance data on a
quarterly basis; and providing a quarterly (optional) rebalancing service. See
"Purchases--General--The PACE Program."
For each Portfolio other than PACE Money Market Investments, investment
advisory services are provided by an investment adviser (each an "Adviser")
monitored and compensated by, and unaffiliated with, the Manager. For PACE
Money Market Investments, investment advisory services are provided by Mitchell
Hutchins. The Trust consists of the following twelve Portfolios:
. PACE Money Market Investments
. PACE Government Securities Fixed Income Investments
. PACE Intermediate Fixed Income Investments
. PACE Strategic Fixed Income Investments
. PACE Municipal Fixed Income Investments
. PACE Global Fixed Income Investments
. PACE Large Company Value Equity Investments
. PACE Large Company Growth Equity Investments
. PACE Small/Medium Company Value Equity Investments
. PACE Small/Medium Company Growth Equity Investments
. PACE International Equity Investments
. PACE International Emerging Markets Equity Investments
An investment in PACE Money Market Investments is neither insured nor
guaranteed by the U.S. government. While PACE Money Market Investments seeks to
maintain a stable net asset value of $1.00 per share, there can be no assurance
that it will be able to do so.
Under the PACE Program, you will pay PaineWebber a separate investment
advisory fee ("Program Fee") at an annual rate of up to 1.50% of the value of
shares of the Portfolios held in your PaineWebber account. Certain participants
are eligible for a reduction of the Program Fee. See "Purchases." As a PACE
Program participant, you may incur greater total fees and expenses than
investors purchasing shares of similar investment companies without the benefit
of these professional asset allocation recommendations.
This Prospectus concisely sets forth information about the Trust that you
should know before investing. Please retain this Prospectus for future
reference. A Statement of Additional Information ("SAI"), dated June , 1995
(which information is incorporated by reference herein), is on file with the
Securities and Exchange Commission ("SEC"). You can obtain a free copy of the
SAI, and further inquiries can be made, by contacting the Trust, your
PaineWebber investment executive or by calling toll-free at 1-800- - .
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
PROSPECTUS SUMMARY
This section summarizes certain terms and provisions of the PACE Program and
the Portfolios of the Trust. Please read the rest of this Prospectus for addi-
tional important information.
PACE PROGRAM. The PACE Program is an investment advisory service pursuant to
which PaineWebber provides to you personalized asset allocation recommendations
and related services based on an evaluation of your investment objectives and
risk tolerances. The PACE Program is an investment advisory service. For the
services provided to you under the PACE Program, you pay PaineWebber a quar-
terly Program Fee at an annual rate of up to 1.50% of the value of the shares
of the Portfolios held in your PaineWebber account. Certain participants are
eligible for a reduction of the Program Fee. See "Purchases."
THE TRUST. The Trust is a newly organized mutual fund which provides a conve-
nient means of investing in a number of professionally managed portfolios. The
Trust currently consists of twelve separate no-load Portfolios. The following
is a summary of important features of the Portfolios.
<TABLE>
<CAPTION>
INVESTMENT CORE PORTFOLIO INVESTMENT
PACE PORTFOLIO OBJECTIVE INVESTMENTS ADVISER
-------------- ---------- -------------- ----------
<S> <C> <C> <C>
PACE MONEY MARKET Current income High quality money Mitchell Hutchins
INVESTMENTS consistent with market instruments Asset Management
preservation of Inc.
capital and
liquidity
PACE GOVERNMENT Current income Primarily U.S. Pacific Investment
SECURITIES FIXED government and Management Company
INCOME INVESTMENTS agency securities of
varying maturities,
as well as mortgage-
backed securities,
with a dollar-
weighted average
portfolio duration
of between two and
seven years
PACE INTERMEDIATE Current income, Fixed income Pacific Income
FIXED INCOME consistent with securities with a Advisers, Inc.
INVESTMENTS reasonable stability dollar-weighted
of principal average portfolio
duration of between
two and four and
one-half years
PACE STRATEGIC FIXED Total return Fixed income Pacific Investment
INCOME INVESTMENTS consisting of income securities of Management Company
and capital varying maturities
appreciation with a dollar-
weighted average
portfolio duration
of between three and
eight years
PACE MUNICIPAL FIXED High current income General obligation, Morgan Grenfell
INCOME INVESTMENTS exempt from federal revenue and private Capital Management,
income tax activity bonds and Incorporated
notes, the interest
on which is exempt
from federal income
tax, with a dollar-
weighted average
portfolio duration
of between three and
seven years
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT CORE PORTFOLIO INVESTMENT
PACE PORTFOLIO OBJECTIVE INVESTMENTS ADVISER
-------------- ---------- -------------- ----------
<S> <C> <C> <C>
PACE GLOBAL FIXED High total return High-grade fixed Rogge Global
INCOME INVESTMENTS income securities Partners plc
issued by domestic
and foreign
governments and
supranational
entities and private
issuers located
overseas, with a
dollar-weighted
average portfolio
duration of between
four and eight years
PACE LARGE COMPANY Capital appreciation Equity securities Brinson Partners,
VALUE EQUITY and dividend income with the majority of Inc.
INVESTMENTS the Portfolio
invested in common
stocks of companies
with total market
capitalization
(i.e., market value
of common stock
outstanding) of at
least $2.5 billion
PACE LARGE COMPANY Capital appreciation Equity securities of Chancellor Capital
GROWTH EQUITY companies Management, Inc.
INVESTMENTS characterized by an
earnings growth rate
which is faster than
that of the S&P 500
index and
with total market
capitalization
(i.e., market value
of common stock
outstanding) of at
least $2.5 billion
PACE SMALL/MEDIUM Capital appreciation Equity securities of Brandywine Asset
COMPANY VALUE EQUITY companies that have Management, Inc.
INVESTMENTS below-market average
price/earnings
ratios and with
total market
capitalization
(i.e., market value
of common stock
outstanding) of less
than $2.5 billion
PACE SMALL/MEDIUM Capital appreciation Equity securities of Westfield Capital
COMPANY GROWTH companies Management Company,
EQUITY INVESTMENTS characterized by Inc.
above-average growth
of earnings rates
with total market
capitalization
(i.e., market value
of common stock
outstanding) of less
than $2.5 billion
PACE INTERNATIONAL Capital appreciation Equity securities of Martin Currie Inc.
EQUITY INVESTMENTS issuers domiciled
outside the United
States
PACE INTERNATIONAL Capital appreciation Equity securities of Schroder Capital
EMERGING MARKETS issuers domiciled or Management
EQUITY INVESTMENTS doing business in International Inc.
emerging markets
</TABLE>
3
<PAGE>
MANAGEMENT. Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins" or
the "Manager") acts as the Manager for each Portfolio and also as the
investment adviser for PACE Money Market Investments. All other Portfolios are
advised by an Adviser monitored and compensated by, and unaffiliated with, the
Manager. See "Management."
RISK FACTORS AND SPECIAL CONSIDERATIONS. No assurance can be given that any
Portfolio will achieve its investment objective. Investing in a Portfolio that
invests in securities of companies and governments of foreign countries,
particularly emerging market countries, involves risks that go beyond the usual
risks inherent in a Portfolio that limits its holdings to domestic investments.
A substantial portion of the assets of certain Portfolios may be held in
securities denominated in one or more foreign currencies, which will result in
these Portfolios bearing the risk that those currencies may lose value in
relation to the U.S. dollar. See "Investment Objectives and Policies of the
Portfolios and Risk Factors--Other Investment Policies and Risk Factors."
Certain Portfolios may use derivative instruments, investment techniques and
strategies such as entering into forward currency contracts, repurchase
agreements and interest rate protection transactions and purchasing and selling
(writing) options, futures contracts and options on futures contracts, which
can increase a Portfolio's risks. See "Investment Objectives and Policies of
the Portfolios and Risk Factors--Other Investment Policies and Risk Factors."
PACE Government Securities Fixed Income Investments, PACE Intermediate Fixed
Income Investments and PACE Strategic Fixed Income Investments may invest in
U.S. government stripped mortgage-related securities and zero coupon
securities, which, due to changes in interest rates, are more speculative and
subject to greater fluctuations in value than securities that pay interest
currently. See "Investment Objectives and Policies of the Portfolios and Risk
Factors--Other Investment Policies and Risk Factors."
PACE Intermediate Fixed Income Investments and PACE Global Fixed Income
Investments each are "non-diversified" as that term is defined in the
Investment Company Act of 1940 ("1940 Act"). To the extent that a Portfolio at
times may include the securities of a smaller number of issuers than if it were
"diversified" (as defined in the 1940 Act), that Portfolio will be subject to
greater risk with respect to its portfolio securities than if it had invested
in a broader range of securities, because changes in the financial condition or
market assessment of a single issuer may cause greater fluctuation in the
Portfolio's total return and the price of its shares. See "Investment
Objectives and Policies of the Portfolios and Risk Factors--Other Investment
Policies and Risk Factors."
In addition, PACE Strategic Fixed Income Investments may invest significantly
in high yield, high risk securities (commonly known as "junk bonds") that are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. See "Investment Objectives and Policies of the Portfolios
and Risk Factors--Other Investment Policies and Risk Factors."
PaineWebber provides advisory services to you as a participant in the PACE
Program, for which you pay a fee that does not vary based on the Portfolios
recommended for your investments. At the same time, Mitchell Hutchins, a wholly
owned subsidiary of PaineWebber, serves as the Trust's Manager, which has
responsibility for monitoring and compensating each Adviser. As Manager,
Mitchell Hutchins receives a fee from each Portfolio and retains all or a
portion of that
4
<PAGE>
fee, the amount of which depends on the Portfolio involved. Consequently,
PaineWebber, when making asset allocation recommendations for you, may have a
conflict of interest as to the specific Portfolios recommended for investment.
PaineWebber, however, is required by applicable standards of fiduciary duty to
act solely in your best interest when making investment recommendations for
you. You also should be aware that the Manager may have various conflicts of
interest when making decisions regarding the retention and compensation of
particular Advisers. However, the Manager's compensation and decisions,
including the specific amount of the Manager's compensation to be paid to the
Adviser, are subject to review and approval by the Trust's board of trustees
and separately by the trustees who are not affiliated with the Manager, any of
the Advisers or any of their affiliates. See "Management--Manager" and
"Purchases--General--The PACE Program."
The Portfolios are intended as vehicles for the implementation of long-term
asset allocation strategies rendered through the PACE Program that are based on
an evaluation of your investment objectives and risk tolerances. Because these
asset allocation strategies are designed to spread investment risk across the
various segments of the securities markets through investment in a number of
Portfolios, each individual Portfolio generally intends to be fully invested in
accordance with its investment objective and policies during most market
conditions. Although the Adviser of a Portfolio may, upon the concurrence of
the Manager, take a temporary defensive position when the Adviser believes
adverse market conditions so warrant, it can be expected that a defensive
posture will be adopted less frequently than would be the case for other mutual
funds. This policy may impede an Adviser's ability to protect a Portfolio's
capital during declines in the particular segment of the market to which the
Portfolio's assets are committed. Consequently, no single Portfolio should be
considered a complete investment program, and an investment among the
Portfolios should be regarded as a long-term investment that should be held
through several market cycles.
There can also be no assurance that PaineWebber's periodic recommendations
for adjustments in the allocation of assets among Portfolios will be successful
or can be developed, transmitted and acted upon in a manner sufficiently timely
to avoid market shifts, which can be sudden and substantial. You are urged to
consider carefully PaineWebber's asset allocation recommendations in light of
your investment needs and to act promptly upon any recommended reallocation of
assets among the Portfolios. See "Exchanges."
PURCHASE AND REDEMPTION OF SHARES. You may purchase shares of the Portfolios
only if you are a participant in the PACE Program. The minimum initial
investment in the Trust is $25,000 ($10,000, if you become a participant in the
PACE Program at the commencement of Trust operations) and any subsequent
investment in the Trust must be at a minimum of $500. The minimum initial
investment in an individual retirement account is $10,000. Shares of the
Portfolios are offered for purchase and redemption at their respective net
asset values next determined after receipt. You do not pay a sales charge in
connection with purchases or redemptions. As stated above under "PACE Program,"
for services provided to you under the PACE Program, you pay PaineWebber a
quarterly Program Fee at an annual rate of up to 1.50% of the value of the
shares of the Portfolios held in your PaineWebber account. Certain participants
are eligible for a reduction in the Program Fee. See "Purchases" and
"Redemptions."
5
<PAGE>
DIVIDENDS AND TAXES. Dividends from the net investment income of PACE Money
Market Investments are declared daily and paid monthly. Dividends from the net
investment income of PACE Government Securities Fixed Income Investments, PACE
Intermediate Fixed Income Investments, PACE Strategic Fixed Income Investments,
PACE Municipal Fixed Income Investments and PACE Global Fixed Income
Investments are declared and paid monthly and may be accompanied by
distributions of net realized short-term capital gains and net realized gains
from foreign currency transactions, if any. Dividends from the net investment
income of the six equity Portfolios are declared and paid annually.
Distributions of any undistributed net realized gains from foreign currency
transactions, net capital gain (the excess of net long term capital gain over
net short-term capital loss) and undistributed net realized short-term capital
gain, if any, earned by a Portfolio will be made annually. See "Dividends and
Taxes."
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company is
custodian of each Portfolio's assets and employs foreign subcustodians to
provide custody of the Portfolio's foreign assets, if any. PFPC Inc. is each
Portfolio's transfer and dividend disbursing agent (the "Transfer Agent").
6
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
7
<PAGE>
TRUST EXPENSES
The following table lists the costs and expenses, including the separate fees
for the PACE Program, that you will incur either directly or indirectly as a
shareholder of each Portfolio based on the Portfolio's projected annual operat-
ing expenses.
<TABLE>
<CAPTION>
PACE
PACE GOVERNMENT PACE PACE PACE PACE
MONEY SECURITIES INTERMEDIATE STRATEGIC MUNICIPAL GLOBAL
MARKET FIXED INCOME FIXED INCOME FIXED INCOME FIXED INCOME FIXED INCOME
INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS
----------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES............... None None None None None None
Maximum Program Fee (as
a percentage of average
value of Portfolio
shares held on the last
calendar day of the
previous quarter)...... 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%
===== ===== ===== ===== ===== =====
ANNUAL PORTFOLIO
OPERATING EXPENSES*
(as a percentage of
average net assets)
Management Fees (Before
Fee Waivers)**......... 0.15% 0.50% 0.40% 0.50% 0.40% 0.60%
Administration Fee
(Before Fee Waivers)... 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Distribution (Rule 12b-
1)
Expenses............... None None None None None None
Other expenses (Before
Expense
Reimbursements)+....... 1.02% 0.76% 0.54% 0.63% 0.86% 0.85%
----- ----- ----- ----- ----- -----
Total Portfolio
Operating Expenses
(Before Fee Waivers and
Expense
Reimbursements)+....... 1.37% 1.46% 1.14% 1.33% 1.46% 1.65%
===== ===== ===== ===== ===== =====
Total Portfolio
Operating Expenses
(Net of Fee Waivers and
Expense
Reimbursements)***..... 0.50% 0.85% 0.85% 0.85% 0.85% 0.95%
===== ===== ===== ===== ===== =====
</TABLE>
- -------
* Does not include the Program Fee.
** "Management Fees" includes the amounts paid by Mitchell Hutchins to the Ad-
viser for each Portfolio.
*** Mitchell Hutchins has agreed to waive its management fees and subsidize
certain operating expenses with respect to each Portfolio for the fiscal year
ending July 31, 1996, which will lower the overall expenses of each Portfo-
lio, to the levels noted above.
+ Based on estimated data for the Trust's fiscal year ending July 31, 1996,
without taking into account the fee waivers and expense reimbursements.
8
<PAGE>
<TABLE>
<CAPTION>
PACE PACE
PACE PACE SMALL/ SMALL/ PACE
LARGE LARGE MEDIUM MEDIUM INTERNATIONAL
COMPANY COMPANY COMPANY COMPANY PACE EMERGING
VALUE GROWTH VALUE GROWTH INTERNATIONAL MARKETS
EQUITY EQUITY EQUITY EQUITY EQUITY EQUITY
INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS
----------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES............... None None None None None None
Maximum Program Fee (as
a percentage of average
value of Portfolio
shares held on the last
calendar day of the
previous
quarter)............... 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%
===== ===== ===== ===== ===== =====
ANNUAL PORTFOLIO
OPERATING EXPENSES*
(as a percentage of
average net
assets)
Management Fees (Before
Fee Waivers)**......... 0.60% 0.60% 0.60% 0.60% 0.70% 0.90%
Administration Fee
(Before Fee Waivers)... 0.20% 0.20% 0.20% 0.20% 0.20% 0.20%
Distribution (Rule 12b-
1)
Expenses............... None None None None None None
Other expenses (Before
Expense
Reimbursements)+....... 0.47% 0.49% 0.61% 0.76% 0.62% 1.12%
----- ----- ----- ----- ----- -----
Total Portfolio
Operating Expenses
(Before Fee Waivers and
Expense
Reimbursements)+....... 1.27% 1.29% 1.41% 1.56% 1.52% 2.22%
===== ===== ===== ===== ===== =====
Total Portfolio
Operating Expenses
(Net of Fee Waivers and
Expense
Reimbursements)***..... 1.00% 1.00% 1.00% 1.00% 1.50% 1.50%
===== ===== ===== ===== ===== =====
</TABLE>
- -------
See footnotes on previous page.
9
<PAGE>
Management and Administration Fees; Expenses. Each Portfolio pays the Manager
a fee for its services that is computed daily and paid monthly at an annual
rate ranging among the Portfolios from 0.15% to 0.90% of the value of the
average daily net assets of the Portfolio. The fees of each Adviser are paid by
the Manager. Each Portfolio also pays Mitchell Hutchins an administration fee
that is computed daily and paid monthly at an annual rate of 0.20% of the value
of the average daily net assets of the Portfolios. The nature of the services
provided to, and the aggregate management and administration fees paid by, each
Portfolio are described under "Management." "Other Expenses" include estimated
fees for shareholder services, custodial fees, legal and accounting fees,
printing costs, registration fees, the costs of regulatory compliance and a
Portfolio's allocated portion of the costs associated with maintaining the
Trust's legal existence and the costs involved in the Trust's communications
with shareholders. Through the Trust's first fiscal year ending July 31, 1996,
the Manager will voluntarily reimburse expenses of a Portfolio or waive all or
a portion of the fees otherwise payable to it, or both in order to have the
Portfolios operate at the expense rates indicated in the Expense Table above.
EXAMPLE.
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical investment in the Portfolios through the PACE Program. These
amounts, which include the maximum fees for the PACE Program, are based upon
(i) payment by the Portfolios of operating expenses (net of fee waivers and
expense reimbursements) at the levels set forth in the tables above and (ii)
the specific assumptions stated below:
<TABLE>
<CAPTION>
PACE
GOVERNMENT PACE PACE PACE PACE
PACE SECURITIES INTERMEDIATE STRATEGIC MUNICIPAL GLOBAL
MONEY FIXED FIXED FIXED FIXED FIXED
MARKET INCOME INCOME INCOME INCOME INCOME
INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS
------------ ------------ ------------ ------------ ------------ ------------
1 3 1 3 1 3 1 3 1 3 1 3
YEAR YEARS YEAR YEARS YEAR YEARS YEAR YEARS YEAR YEARS YEAR YEARS
----- ------ ----- ------ ------------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A shareholder would pay
the following expenses
on a $1,000
investment, assuming
(i) a 5% annual return
and (ii) redemption at
the end of each time
period: $ 20 $ 63 $ 24 $ 73 $ 24 $ 73$ 24 $ 73 $ 24 $ 73 $ 25 $ 76
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PACE
PACE PACE SMALL/ PACE
PACE LARGE SMALL/ MEDIUM INTERNATIONAL
LARGE COMPANY MEDIUM COMPANY PACE EMERGING
COMPANY GROWTH COMPANY GROWTH INTERNATIONAL MARKETS
VALUE EQUITY EQUITY VALUE EQUITY EQUITY EQUITY EQUITY
INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS
------------ ------------ ------------ ------------ -------------- --------------
1 3 1 3 1 3 1 3 1 3 1 3
YEAR YEARS YEAR YEARS YEAR YEARS YEAR YEARS YEAR YEARS YEAR YEARS
------------ ----- ------ ------------ ----- ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
A shareholder would pay
the following expenses
on a $1,000
investment, assuming
(i) a 5% annual return
and (ii) redemption at
the end of each time
period: $ 25 $ 78$ 25 $ 78 $ 25 $ 78$ 25 $ 78 $ 30 $ 93 $ 30 $ 93
</TABLE>
This Example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed under Annual Portfolio
Operating Expenses remain the same in the years shown. It also assumes payment
of the maximum Program Fee of 1.50% of the value of the shares of the
Portfolios held in your PaineWebber account each year. The above tables and the
assumption in the Example of a 5% annual return are required by regulations of
the SEC applicable to all mutual funds; the assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual performance of
the Portfolios' shares.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES, AND A PORTFOLIO'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE
SHOWN. The actual expenses attributable to each Portfolio's shares will depend
upon, among other things, the level of average net assets, the extent to which
a Portfolio incurs variable expenses, such as transfer agency costs, and
whether the Manager reimburses all or a portion of the Portfolio's expenses
and/or waives all or a portion of its management and administration fees.
11
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS AND RISK FACTORS
A description of the investment objective and policies of each Portfolio fol-
lows. There can be no assurance that a Portfolio will achieve its investment
objective. The investment objective of a Portfolio is a fundamental policy and
may not be changed without the approval by vote of the shareholders of that
Portfolio. See the SAI for a further definition of approval by vote of the
shareholders. Unless otherwise specified, the other investment policies of a
Portfolio are not fundamental and can be changed by the board of trustees act-
ing alone. Further information about the investment policies of each Portfolio,
including a list of those restrictions on its investment activities that cannot
be changed without shareholder approval, appears in the "Investment Policies
and Restrictions" section of the SAI.
PACE MONEY MARKET INVESTMENTS
Adviser: Mitchell Hutchins Asset Management Inc.
Objective: Current income consistent with preservation of capital and liquid-
ity
PACE Money Market Investments seeks to achieve its investment objective by
investing in high quality money market instruments including U.S. government
securities, obligations of U.S. banks, commercial paper and other short-term
corporate obligations, corporate bonds and notes, variable and floating rate
securities or repurchase agreements involving any of the foregoing securities.
The Portfolio may also purchase participation interests in any of the securi-
ties in which it is permitted to invest. Participation interests are pro rata
interests in securities held by others. The Portfolio invests only in U.S. dol-
lar-denominated securities that have remaining maturities of 397 days or less
at the time of purchase. The Portfolio maintains a dollar-weighted average
portfolio maturity of 90 days or less.
The Portfolio may invest in obligations (including certificates of deposit,
bankers' acceptances and similar obligations) of U.S banks, including foreign
branches of domestic banks and domestic branches of foreign banks, having total
assets in excess of $1.5 billion at the time of purchase. The Portfolio may
also invest in interest-bearing savings deposits in U.S. commercial and savings
banks having total assets of $1.5 billion or less, provided that the principal
amounts at each such bank are fully insured by the Federal Deposit Insurance
Corporation and the aggregate amount of such deposits (plus interest earned)
does not exceed 5% of the value of the Portfolio's assets.
The commercial paper and other short-term corporate obligations purchased by
the Portfolio consist only of obligations that Mitchell Hutchins determines,
pursuant to procedures adopted by the Trust's board of trustees, present mini-
mal credit risks and are either (1) rated in the highest short-term rating cat-
egory by at least two nationally recognized statistical rating organizations
("NRSROs"), (2) rated in the highest short-term rating category by a single
NRSRO if only that NRSRO has assigned the obligations a short-term rating or
(3) unrated, but determined by Mitchell Hutchins to be of comparable quality
(collectively, "First Tier Securities"). The Portfolio generally may invest no
more than 5% of its total assets in the securities of a single issuer (other
than securities issued by the U.S. government, its agencies or instrumentali-
ties).
The Portfolio follows these policies to maintain a constant net asset value
of $1.00 per share, although there can be no assurance it will be able to do
so. The yield and value of Portfolio shares and the yield and value of portfo-
lio securities are also not insured or guaran-
12
<PAGE>
teed by the U.S. government. The yield attained by the Portfolio may not be as
high as that of other funds that invest in lower quality or longer term securi-
ties. See "Investment Objectives and Policies of the Portfolios--Other Invest-
ment Policies and Risk Factors" for other investment policies of the Portfolio.
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
Adviser: Pacific Investment Management Company
Objective: Current income
PACE Government Securities Fixed Income Investments seeks to achieve its in-
vestment objective by investing primarily in U.S. government and agency securi-
ties of varying maturities, as well as mortgage-backed securities, with a dol-
lar-weighted average portfolio duration of between two and seven years. Under
normal conditions, the Portfolio invests at least 65% of its total assets in
U.S. government fixed income securities, which include U.S. Treasury obliga-
tions and obligations issued or guaranteed by U.S. government agencies or in-
strumentalities and repurchase agreements with respect to these securities.
"Fixed Income Securities" include debt instruments the interest payment on
which may be fixed, variable or floating and also includes zero coupon securi-
ties which pay no interest until maturity.
The Portfolio may invest in U.S. government securities that are backed by the
full faith and credit of the U.S. government, such as Government National Mort-
gage Association mortgage-backed securities ("GNMA certificates"), securities
that are supported primarily or solely by the creditworthiness of the issuer,
such as securities issued by the Resolution Funding Corporation ("RFC") and the
Tennessee Valley Authority ("TVA"), and securities that are supported primarily
or solely by specific pools of assets and the creditworthiness of a U.S. gov-
ernment-related issuer, such as mortgage-backed securities issued by the Fed-
eral National Mortgage Association ("FNMA"), the Federal Home Loan Mortgage
Corporation ("FHLMC") or the Resolution Trust Corporation ("RTC").
The Portfolio also may invest in certain zero coupon securities that are U.S.
Treasury notes and bonds that have been stripped of their unmatured interest
coupon receipts or interests in such U.S. Treasury securities or coupons, in-
cluding Certificates of Accrual Treasury Securities ("CATS") and Treasury In-
come Growth Receipts ("TIGRs"). The SEC staff currently takes the position that
"stripped" U.S. government securities that are not issued through the U.S.
Treasury STRIPS program are not U.S. government securities. As long as the SEC
takes this position, CATS and TIGRs will not be considered U.S. government se-
curities for purposes of the 65% investment requirement. See "Investment Objec-
tives and Policies of the Portfolios and Risk Factors--Other Investment Poli-
cies and Risk Factors--Risks of Mortgage-Backed and Asset-Backed Securities"
for further discussion of the mortgage-backed and asset-backed securities in
which the Portfolio may invest.
The Portfolio may invest up to 35% of its total assets in mortgage-backed se-
curities that are issued by private issuers and in debt securities of other
corporate issuers. To maintain a dollar-weighted average portfolio duration of
between two and seven years, the Adviser monitors the prepayment experience of
the underlying mortgage pools of the Portfolio's mortgage-related securities
and will purchase and sell securities in the Portfolio to shorten or lengthen
the average duration of the Portfolio, as appropriate.
13
<PAGE>
The Portfolio's investments in Fixed Income Securities are limited to those
that are rated at least A by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P") (or, if unrated, determined by the Ad-
viser to be of comparable quality). See the Appendix to the SAI for a descrip-
tion of Moody's and S&P's ratings. In addition, the Portfolio will not acquire
a security if, as a result, more than 25% of the Portfolio's total assets would
be invested in securities rated below AAA, or if more than 10% of the Portfo-
lio's total assets would be invested in securities rated A.
The Portfolio may use options, futures contracts, options on futures con-
tracts and interest rate protection transactions for hedging and income and re-
turn enhancement purposes. See "Investment Objectives and Policies of the Port-
folios and Risk Factors--Other Investment Policies and Risk Factors" for fur-
ther discussion of hedging and related strategies and other investment policies
of the Portfolio.
PACE INTERMEDIATE FIXED INCOME INVESTMENTS
Adviser: Pacific Income Advisers, Inc.
Objective: Current income, consistent with reasonable stability of principal
PACE Intermediate Fixed Income Investments seeks to achieve its objectives
through investment in Fixed Income Securities with a dollar-weighted average
portfolio duration of between two and four and one-half years. Under normal
conditions, the Portfolio invests at least 65% of its total assets in U.S. gov-
ernment securities, corporate bonds, debentures, non-convertible fixed income
securities, preferred stocks, mortgage-related securities, Eurodollar certifi-
cates of deposit, Eurodollar bonds and Yankee bonds. The Portfolio also may
invest up to 10% of its total assets in securities denominated in foreign
currencies of developed countries. The Portfolio limits its investments to
investment grade securities, which are securities rated within the four highest
categories established by at least one NRSRO (e.g., Moody's or S&P) and unrated
securities determined by the Adviser to be of com-parable quality. Securities in
the lowest of those four categories, i.e., rated Baa by Moody's or BBB by S&P,
have speculative characteristics and are subject to greater risks. See the
Appendix to the SAI for a description of Moody's and S&P ratings and "Investment
Objectives and Policies of the Portfolios and Risk Factors--Other Investment
Policies and Risk Factors--Debt Securities" for a de-scription of certain risks
associated with securities in the fourth highest rating category. The Portfolio
may use options, futures contracts and options on futures contracts for hedging
and income and return enhancement purposes. See "Investment Objectives and
Policies of the Portfolios and Risk Factors--Other Investment Policies and Risk
Factors" for further discussion of hedging and related strategies and other
investment policies of the Portfolio.
In an effort to maintain a dollar-weighted average portfolio duration of be-
tween of two and four and one-half years, the Adviser monitors the prepayment
experience of the underlying mortgage pools of the Portfolio's mortgage-related
securities and will purchase and sell securities in the Portfolio to shorten or
lengthen the duration of the Portfolio, as appropriate.
PACE STRATEGIC FIXED INCOME INVESTMENTS
Adviser: Pacific Investment Management Company
Objective: Total return consisting of income and capital appreciation
PACE Strategic Fixed Income Investments seeks to achieve its investment ob-
jective by in-
14
<PAGE>
vesting in a portfolio of Fixed Income Securities of varying maturities with a
dollar-weighted average portfolio duration of between three and eight years.
Portfolio holdings will be invested in areas of the bond market (based on qual-
ity, sector, coupon or maturity) which the Adviser believes to be relatively
undervalued.
Under normal conditions, the Portfolio invests at least 65% of its assets in
Fixed Income Securities which include obligations issued or guaranteed by the
U.S. government, its agencies and instrumentalities, corporate and other debt
obligations, convertible securities, mortgage- and asset-backed securities, ob-
ligations of foreign governments or their subdivisions, agencies or instrumen-
talities, obligations of supranational and quasi-governmental entities, commer-
cial paper, certificates of deposit, money market instruments, foreign currency
exchange-related securities and loan participations. The Portfolio may invest
up to 35% of its total assets in privately issued mortgage-related securities.
All of the securities purchased for the Portfolio will be investment grade
(rated at least Baa by Moody's or BBB by S&P, or, if unrated, determined by the
Adviser to be of comparable quality), except that the Portfolio may invest up
to 20% of its total assets in securities rated below investment grade, but
rated at least B by Moody's or S&P, or determined by the Adviser to be of com-
parable quality. In the event that, due to a downgrade of one or more debt se-
curities, an amount in excess of 20% of the Portfolio's total assets is held in
securities rated below investment grade and comparable unrated securities, the
Adviser will engage in an orderly disposition of such securities to the extent
necessary to reduce the Portfolio's holdings thereof. Securities rated Baa or
lower by Moody's or BBB or lower by S&P have speculative characteristics and
are subject to greater risks. See "Investment Objectives and Policies of the
Portfolios and Risk Factors--Other Investment Policies and Risk Factors--Debt
Securities" below and the Appendix in the SAI for a description of Moody's and
S&P ratings.
The Portfolio may invest up to 10% of its total assets in securities denomi-
nated in foreign currencies and dollar denominated debt of foreign issuers. In
addition, the Portfolio may invest up to 10% of its total assets in Yankee
bonds and Eurodollar bonds combined. The Portfolio may use forward currency
contracts, currency options, currency futures and options thereon to hedge
against unfavorable changes in currency exchange rates and for income and re-
turn enhancement purposes. The Portfolio also may use options, futures con-
tracts, options on futures contracts and interest rate protection transactions
for hedging and income and return enhancement. See "Investment Objectives and
Policies of the Portfolios and Risk Factors--Other Investment Policies and Risk
Factors" for further discussion of hedging and related strategies and other in-
vestment policies of the Portfolio.
PACE MUNICIPAL FIXED INCOME INVESTMENTS
Adviser: Morgan Grenfell Capital Management, Incorporated
Objective: High current income exempt from federal income tax
PACE Municipal Fixed Income Investments seeks to achieve its investment ob-
jective through investment in general obligation, revenue and private activity
bonds and notes, the interest on which is exempt from federal income tax, with
a dollar-weighted portfolio duration of between three and seven years.
Under normal conditions, the Portfolio invests at least 80% of its total as-
sets in general obligation, revenue and private activity bonds and notes that
are issued by or on behalf of
15
<PAGE>
states, territories and possessions of the United States and the District of
Columbia and their political subdivisions, agencies and instrumentalities, or
multi-state agencies or authorities, the interest on which, in the opinion of
counsel to the issuer of the instrument, is exempt from federal income tax
("Municipal Obligations"), including municipal bonds, industrial development
bonds ("IDBs"), municipal lease obligations and certificates of participation
therein, put bonds and private activity bonds ("PABs"). The Portfolio also will
not invest more than 25% of its total assets in Municipal Obligations whose is-
suers are located in the same state or more than 25% of its total assets in Mu-
nicipal Obligations that are secured by revenues from entities in a particular
industry category except that the Portfolio may invest up to 50% of its total
assets in public housing authorities, and state and local housing finance au-
thorities, including bonds that are secured or backed by the U.S. Treasury or
other U.S. government guaranteed securities. To the extent the Portfolio con-
centrates its investments in single family and multi-family housing obliga-
tions, the Portfolio will be subject to the peculiar risks associated with in-
vestments in such obligations, including prepayment risks and the risks of de-
fault on housing loans, which may be affected by economic conditions and other
factors relating to such obligations.
The Portfolio will include Municipal Obligations of varying maturities with a
dollar-weighted average portfolio duration of between three and seven years.
Portfolio composition generally covers a range of maturities with geographic
and issuer diversification. The Portfolio may invest in PABs collateralized by
letters of credit issued by banks having stockholders' equity in excess of $100
million as of the date of their most recently published statement of financial
condition. The Portfolio may also invest in variable rate Municipal Obliga-
tions, most of which permit the holder thereof to receive the principal amount
on demand upon seven days' notice. The Portfolio limits its investments to Mu-
nicipal Obligations that are rated at least A, MIG-2 or Prime 2 by Moody's or
A, SP-2 or A-2 by S&P at the time of investment or unrated securities deter-
mined to be of comparable quality by the Adviser, except that up to 15% of its
total assets may be invested in municipal bonds that, at the time of purchase,
are rated Baa by Moody's or BBB by S&P, or if unrated, are determined by the
Adviser to be of comparable quality. Municipal Obligations in the lowest in-
vestment grade category are considered medium grade securities and have specu-
lative characteristics. See "Investment Objectives and Policies of the Portfo-
lios and Risk Factors--Other Investment Policies and Risk Factors--Debt Securi-
ties" for a discussion of certain risks associated with securities rated in the
fourth highest rating category.
The Portfolio may invest without limit in PABs, although it does not cur-
rently expect to invest more than 25% of its total assets in PABs. Dividends
attributable to interest income on certain types of PABs issued after August
15, 1986, to finance non-governmental activities are a tax preference item for
purposes of the federal alternative minimum tax ("AMT"). No more than 25% of
the interest income will be a tax preference item. Dividends derived from in-
terest income on all Municipal Obligations are a component of the "current
earnings" adjustment for corporations for purposes of the AMT.
Under normal circumstances, the Portfolio may invest up to 20% of its total
assets in certain taxable securities to maintain liquidity. In addition, for
temporary defensive purposes during periods when the Adviser determines that
market conditions warrant, the Portfolio may invest without limit in such tax-
able securities. See "Investment Objectives and Policies
16
<PAGE>
of the Portfolios--Other Investment Policies and Risk Factors" for further dis-
cussion of other investment policies of the Portfolio.
PACE GLOBAL FIXED INCOME INVESTMENTS
Adviser: Rogge Global Partners, plc
Objective: High total return
PACE Global Fixed Income Investments seeks to achieve its investment objec-
tive by investing primarily in high-grade Fixed Income Securities issued by do-
mestic and foreign governments and supranational entities and private issuers
located overseas, with a dollar-weighted average duration of between four and
eight years. Under normal conditions, at least 65% of the value of the Portfo-
lio's total assets will be invested in domestic and foreign bonds issued by
governments, companies and supranational organizations such as the Interna-
tional Bank for Reconstruction and Development (commonly known as the "World
Bank"), Asian Development Bank, European Investment Bank and European Economic
Community. Bonds are viewed by the Portfolio to include fixed income securities
of any maturity. Under normal market conditions, investments will be made in a
minimum of four countries, one of which may be the United States. For temporary
defensive purposes, the Portfolio may invest in securities of only one country,
including the United States. The Portfolio may invest in non-U.S. dollar denom-
inated securities.
The Portfolio will include fixed income securities of varying maturities with
a dollar-weighted average portfolio duration of between four and eight years.
The Portfolio's quality standards limit its investments to those rated within
the three highest grades assigned by Moody's or S&P, or unrated securities de-
termined by the Adviser to be of comparable quality, except for bonds issued by
companies and governments in emerging markets.
The Portfolio may invest up to 10% of its total assets in bonds issued by
companies and governments in emerging countries that at the time of purchase,
are rated Ba or lower by Moody's or BB by S&P or are unrated but determined to
be of comparable quality by the Adviser.
Bonds rated below investment grade are deemed by these agencies to be predom-
inantly speculative with respect to the issuer's capacity to pay interest and
repay principal and may involve major risk exposure to adverse conditions.
These securities are commonly referred to as "junk bonds." In the event that,
due to a downgrade of one or more debt securities, an amount in excess of 10%
of the total assets of the Portfolio is held in securities rated below invest-
ment grade and comparable unrated securities, the Adviser will engage in an or-
derly disposition of such securities to the extent necessary to reduce the
Portfolio's holdings thereof.
The emerging countries in which the Portfolio may invest currently include
Argentina, Brazil, Chile, China, Columbia, Indonesia, India, Malaysia, Mexico,
the Philippines, Poland, Singapore, Thailand and Venezuela. These markets tend
to be in the less economically developed regions of the world. General charac-
teristics of emerging countries also include lower degrees of political stabil-
ity, a high demand for capital investment, a high dependence on export markets
for their major industries, a need to develop basic economic infra-structures
and rapid economic growth. The Adviser believes that investments in bonds is-
sued in emerging countries offer the opportunity for significant long-term in-
vestment returns, however, these investments are lower quality than the three
highest rated securities and involve certain risks. See "Other Investment Poli-
cies and Risk Factors--Foreign Securities."
17
<PAGE>
The Portfolio may use forward currency contracts, currency options, currency
futures and options thereon to hedge against unfavorable changes in currency
exchange rates and for income and return enhancement purposes. The Portfolio
also may use options, futures contracts, and options on futures contracts for
hedging and income and return enhancement purposes. For a more detailed discus-
sion of the risks in investing in foreign securities, see "Investment Policies
and Restrictions--Special Characteristics of Foreign and Emerging Market Secu-
rities" in the SAI. See "Investment Objectives and Policies of the Portfolios
and Risk Factors--Other Investment Policies and Risk Factors" for further dis-
cussion of hedging and related strategies and other investment policies of the
Portfolio.
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS
Adviser: Brinson Partners, Inc.
Objective: Capital appreciation and dividend income
PACE Large Company Value Equity Investments seeks to achieve its investment
objective by investing primarily in equity securities that, in the Adviser's
opinion are undervalued. Under normal circumstances, substantially all of the
Portfolio's total assets will be invested in a wide range of equity securities
of U.S. companies that are traded on major stock exchanges as well as on the
over-the-counter ("OTC") market. The Portfolio may invest in a broad range of
equity securities of U.S. issuers, including common and preferred stocks, debt
securities convertible into or exchangeable for common stock and securities
such as warrants or rights that are convertible into common stock. Up to 10% of
Portfolio's total assets may include convertible debt securities rated BB by
Moody's or Ba by S&P or, if unrated, determined to be of comparable quality by
the Adviser. The Portfolio expects its equity investments to encompass both
large and intermediate capitalization companies, but under normal circumstances
at least 65% of the Portfolio's total assets will be invested in common stock
of companies with total market capitalization (i.e., market value of common
stock outstanding) of $2.5 billion or greater at the time of purchase.
The Adviser's approach to investing for the Portfolio is to invest in the eq-
uity securities of U.S. companies believed to be undervalued based upon inter-
nal research and proprietary valuation systems. Investment decisions are based
on fundamental research, internally developed valuation systems and seasoned
judgment. The Adviser's research focuses on several levels of analysis; first,
on understanding wealth shifts that occur within the equity market, and second,
on individual company research. At the company level, the Adviser quantifies
expectations of a company's ability to generate profit and to grow business
into the future. For each stock under analysis, the Adviser discounts to the
present all of the future cash flows that it believes will accrue to the Port-
folio from the investment to calculate a present or intrinsic value. This value
estimate generated by the Adviser's proprietary valuation model is compared to
observed market price and ranked against other stocks accordingly. The
rankings, in combination with the Adviser's investment judgment, determine
which securities are included in the portfolio.
The Portfolio also may use options, futures contracts and options on futures
contracts for hedging and income and return enhancement purposes. See "Invest-
ment Objectives and Policies of the Portfolios and Risk Factors--Other Invest-
ment Policies and Risk Factors" for further discussion of hedging and related
strategies and other investment policies of the Portfolio.
18
<PAGE>
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS
Adviser: Chancellor Capital Management, Inc.
Objective: Capital appreciation
PACE Large Company Growth Equity Investments seeks to achieve its investment
objective by investing primarily in equity securities of companies that, in the
Adviser's opinion, are characterized by an earnings growth rate which is faster
than that of the average growth rate of the companies included in the Standard
& Poor's 500 Composite Stock Price Index ("S&P 500 Index") and total market
capitalization (i.e., market value of common stock outstanding) of at least
$2.5 billion. Dividend income is an incidental consideration in the selection
of investments. The securities held by the Portfolio can be expected generally
to experience greater volatility than those of PACE Large Company Value Equity
Investments. The Portfolio may invest in a broad range of equity securities of
U.S. issuers, including common and preferred stocks, debt securities convert-
ible into or exchangeable for common stock and securities such as warrants or
rights that are convertible into common stock. In selecting securities for the
Portfolio, the Adviser evaluates factors believed to be favorable to long-term
growth of capital, such as the business outlook for the issuer's industry and
the issuer's position in that industry, as well as the issuer's background,
historical profit margins on equity and experience and qualifications of the
issuer's management. Under normal conditions, at least 65% of the Portfolio's
total assets will be invested in common stocks of companies with total market
capitalization of $2.5 billion or greater at the time of purchase. See "Invest-
ment Objectives and Policies of the Portfolios and Risk Factors--Other Invest-
ment Policies and Risk Factors" for further discussion of other investment pol-
icies of the Portfolio.
The Adviser manages the Portfolio by investing in companies from a defined
growth subset of both the S&P 500 Index and the Russell 1000 Growth indices,
which consists of companies expected to grow at least 50% faster than the mar-
ket. The Adviser divides the growth subset into 19 industry groups, and their
market capitalization weights define its normal or neutral position. Based upon
the Adviser's collective industry evaluation, it may increase or decrease port-
folio exposures on a weekly basis by a maximum 6% relative to the normal
weightings. This permits flexibility relative to its growth benchmark, yet en-
sures against undue volatility associated with overexposure to one industry.
The Adviser's stock selection decisions are determined by: (1) the Adviser's
analysts' forecasts of the industry/company's relative attractiveness; (2) the
Adviser's research-driven dividend discount model; and (3) the Adviser's quan-
titative, fact-based Stock Selection Model that ranks industries/stocks based
primarily on earnings momentum, earnings stability, relative value and relative
strength. The Adviser ranks the stocks in its large-capitalization universe on
a normal bell-shaped curve, purchasing stocks ranked in the top 30% of the com-
bined ranked universe, and selling stocks ranked in the bottom 30%.
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
Adviser: Brandywine Asset Management, Inc.
Objective: Capital appreciation
PACE Small/Medium Company Value Equity Investments seeks to achieve its in-
vestment objective by investing primarily in equity securities that, in the Ad-
viser's opinion, are un-
19
<PAGE>
dervalued or overlooked in the marketplace at the time of purchase, which gen-
erally have below-market average price/earnings (P/E) ratios and with total
market capitalization (i.e., market value of common stock outstanding) of less
than $2.5 billion. The Portfolio will only invest in companies with common
stock traded on the major stock exchanges as well as on the OTC market. The
Portfolio may invest in a broad range of equity securities of U.S. issuers, in-
cluding common and preferred stock, debt securities convertible into or ex-
changeable for common stock and securities such as warrants or rights that are
convertible into common stock. Under normal conditions, at least 65% of the
Portfolio's total assets will be invested in common stocks of issuers with to-
tal market capitalization of less than $2.5 billion at the time of purchase.
The Portfolio defines a low P/E ratio as a P/E (based on trailing twelve-month
earnings) which places an issuer among the lowest 25% based on P/E ratios for
all exchange-traded and OTC stocks with positive earnings and a capitalization
greater than $10 million. See "Investment Objectives and Policies of the Port-
folios and Risk Factors--Other Investment Policies and Risk Factors" for fur-
ther discussion of other investment policies of the Portfolio.
The Adviser performs a qualitative, fundamental review of candidates to de-
termine that they are appropriate candidates for the Portfolio. This review
identifies and avoids stocks undesirable for investment: First, the Adviser ad-
justs all reported earnings for extraordinary gains and losses so as to con-
sider only true, low P/E stocks for entry into the Portfolio. Second, the Ad-
viser excludes stocks that have pre-announced significant earnings changes
which when formally reported will raise their P/E ratios. Third, stocks that
have had recent strong price increases, and therefore are not truly underval-
ued, are eliminated. Fourth, the fundamental review identifies and removes
those stocks that are suffering a severe or sudden fundamental deterioration.
The Portfolio intends to invest in the common stock only of companies meeting
these criteria. Each stock's weighting in the Portfolio will be proportional to
the stock's capitalization, except that the Portfolio will not purchase any
stock if it would exceed 2% of the Portfolio. The Portfolio may deviate from
strict capitalization weighting in order to invest only in round lots, for il-
liquidity considerations, or to block purchases at favorable prices.
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS
Adviser: Westfield Capital Management Company, Inc.
Objective: Capital appreciation
PACE Small/Medium Company Growth Equity Investments seeks to achieve its in-
vestment objective by investing primarily in the common stock of "emerging
growth" companies, companies characterized by above-average earnings growth
rates and total market capitalization (i.e., market value of common stock out-
standing) of less than $2.5 billion. Dividend income is an incidental consider-
ation in the selection of investments. The securities held by the Portfolio can
be expected generally to experience greater volatility than those of PACE
Small/Medium Company Value Equity Investments. The Portfolio may invest in a
broad range of equity securities of U.S. issuers, including common and pre-
ferred stock, debt securities convertible into or exchangeable for common stock
and securities such as warrants or rights that are convertible into common
stock. Under normal conditions, at least 80% of the Portfolio's total assets
will be invested in common stocks of issuers with total market capitalization
of less than $2.5 billion that exhibit the potential for high future earnings
growth relative to the overall market.
20
<PAGE>
The Adviser uses a bottom-up, fundamental approach, including on-site company
visits, to uncover and analyze companies that exhibit the possibility of accel-
erating earnings growth because of management changes, new products, estab-
lished products exhibiting unit volume growth or structural changes in the
economy. The quality of the management team and the strength of the company's
finances and internal controls are also factors in the investment decision. A
12 to 18 month time horizon is employed in selecting stocks; however, selected
issues may be held for extended periods based on the Adviser's outlook.
The Adviser is exposed to and follows companies constituting a full range of
market sectors; nevertheless, it may focus on a limited number of attractive
industries. The securities of these companies may have limited marketability
and may be subject to more abrupt or erratic market movements than securities
of larger, more established companies or the market averages in general. The
Portfolio also may use options, futures contracts and options on futures con-
tracts for hedging and income and return enhancement purposes. See "Investment
Objectives and Policies of the Portfolios and Risk Factors--Other Investment
Policies and Risk Factors" for further discussion of hedging and related strat-
egies and other investment policies of the Portfolio.
PACE INTERNATIONAL EQUITY INVESTMENTS
Adviser: Martin Currie Inc.
Objective: Capital appreciation
PACE International Equity Investments seeks to achieve its objective by in-
vesting in equity securities of companies domiciled outside the United States.
Under normal market conditions, at least 65% of the Portfolio's total assets
will be invested in common stocks, which may or may not pay dividends, as well
as convertible bonds, convertible preferred stocks, warrants, rights or other
equity securities of companies domiciled outside the United States. The Portfo-
lio also may invest up to 10% of its total assets in securities of investment
companies, such as closed-end investment management companies which invest in
foreign markets.
The Portfolio will normally invest in the securities of three or more coun-
tries outside the United States. Particular consideration will be given to in-
vestments principally traded in Japanese, European, Pacific and Australian se-
curities markets, and in foreign securities of companies traded on United
States' securities markets. The Portfolio will also invest up to 10% of its to-
tal assets in emerging markets, including Asia, Latin America and other re-
gions, where markets may not yet fully reflect the potential of the developing
economy. For purposes of this Portfolio, "emerging markets" are markets in
countries not included in the Morgan Stanley Capital International World Index
("MSCI Index") of major world economies.
In allocating the Portfolio's assets among the various securities markets of
the world, the Adviser will consider such factors as the condition and growth
potential of the various economic and securities markets, currency and taxation
considerations and other pertinent financial, social, national and political
factors. Under certain adverse investment conditions, the Portfolio may re-
strict the number of securities markets in which its assets will be invested,
although under normal market circumstances the Portfolio's investments will in-
volve securities principally traded in at least ten different countries. The
Portfolio will invest only in markets where, in the judgment of the Adviser,
there exists an acceptable framework of market regulation and sufficient li-
quidity.
When the Adviser believes that conditions in international securities markets
warrant a
21
<PAGE>
defensive investment strategy, the Portfolio temporarily may invest up to 100%
of its assets in domestic debt, foreign debt principally traded in the United
States, and in foreign debt securities principally traded outside of the
United States, obligations issued or guaranteed by the U.S. or a foreign gov-
ernment or their respective agencies, authorities or instrumentalities, corpo-
rate bonds and sponsored American Depository Receipts ("ADRs").
The Portfolio may use forward currency contracts, currency options, currency
future and options thereon to hedge against unfavor-able changes in currency
and for income and return enhancement purposes. The Portfolio also may use op-
tions, futures contracts and options on futures contracts for hedging and in-
come and return enhancement purposes. See "Investment Objectives and Policies
of the Portfolios and Risk Factors--Other Investment Policies and Risk Fac-
tors" for further discussion of hedging and related strategies and other in-
vestment policies of the Portfolio. For a more detailed discussion of the
risks in investing in foreign securities, see "Investment Policies and Re-
strictions--Special Characteristics of Foreign and Emerging Market Securities"
in the SAI.
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
Adviser: Schroder Capital Management International Inc.
Objective: Capital appreciation
PACE International Emerging Markets Equity Investments seeks to achieve its
investment objective by investing, under normal conditions, at least 65% of
the Portfolio's total assets in equity securities of issuers domiciled or do-
ing business in emerging market countries. For purposes of this Portfolio,
"emerging market" countries are all markets in all countries not included in
the MSCI Index of major world economies and Malaysia. The Portfolio may invest
in a broad range of equity securities, including common and preferred stock,
debt securities convertible into or exchangeable for stock and securities such
as warrants or rights that are convertible into stock. The Portfolio also may
invest up to 10% of its total assets in securities of investment companies,
such as closed-end investment management companies which invest in foreign
markets. Under normal circumstances, the Portfolio will invest in three or
more emerging market countries.
In recent years, many emerging market countries have begun programs of eco-
nomic reform: removing import tariffs, dismantling trade barriers, deregulat-
ing foreign investment, privatizing state owned industries, permitting the
value of their currencies to float against the dollar and other major curren-
cies, and generally reducing the level of state intervention in industry and
commerce. Important intra-regional economic integration also holds the promise
of greater trade and growth. At the same time, significant progress has been
made in restructuring the heavy external debt burden that certain emerging
market countries accumulated during the 1970s and 1980s. While there is no as-
surance that these trends will continue, the Adviser will seek out attractive
investment opportunities in these countries.
The Portfolio will not necessarily seek to diversify investments on a geo-
graphic basis within the emerging market category and to the extent the Port-
folio concentrates its investments in issuers located in one country or area,
the Portfolio is more susceptible to factors adversely affecting that country
or area.
The Portfolio may use forward currency contracts, currency options, currency
futures and options thereon to hedge against unfavorable changes in currency
exchange rates and for income and return enhancement purposes. The Portfolio
may acquire emerging market
22
<PAGE>
securities that are denominated in currencies other than a currency of an
emerging market country. The Portfolio also may use options, futures contracts
and options on futures contracts for hedging and income and return enhancement
purposes. See "Investment Objectives and Policies of the Portfolios and Risk
Factors--Other Investment Policies and Risk Factors" for further discussion of
hedging and related strategies and other investment policies of the Portfolio.
For a more detailed discussion of the risks in investing in foreign securities,
see "Investment Policies and Restrictions--Special Characteristics of Foreign
and Emerging Market Securities" in the SAI.
OTHER INVESTMENT POLICIES AND RISK FACTORS
MONEY MARKET INSTRUMENTS
All Portfolios other than PACE Money Market Investments also may invest in
high-quality money market instruments such as commercial paper of a U.S. or
foreign company or foreign government certificates of deposit, bankers' accept-
ances and time deposits of domestic and foreign banks, and obligations issued
or guaranteed by the U.S. government, its agencies and instrumentalities. These
obligations generally will be U.S. dollar-denominated. Commercial paper will be
rated, at the time of purchase, at least "Prime-2" by Moody's or "A-2" by S&P
or, if not rated, issued by an entity having an outstanding unsecured debt is-
sue rated at least "A" or "Prime-2" by Moody's or "A" or "A-2" by S&P. See the
Appendix to the SAI for a description of Moody's and S&P's ratings.
U.S. GOVERNMENT SECURITIES
Each Portfolio may invest in some or all of the following U.S. government se-
curities: securities that are backed by the full faith and credit of the U.S.
government, such as U.S. Treasury obligations (bills, notes and bonds), securi-
ties that are supported primarily or solely by the creditworthiness of the gov-
ernment-related issuer, such as securities issued by the RFC, the Student Loan
Marketing Association, the Federal Home Loan Banks and the TVA, and securities
that are supported primarily or solely by specific pools of assets and the
creditworthiness of a U.S. government-related issuer, such as U.S. government
mortgage-backed securities. For more information concerning the types of mort-
gage-backed securities in which certain Portfolios may invest, see "Investment
Objectives and Policies of the Portfolios--Other Investment Policies and Risk
Factors--Mortgage-Backed Securities." In addition, PACE Government Securities
Fixed Income Investments, PACE Intermediate Fixed Income Investments and PACE
Strategic Fixed Income Investments may invest in certain zero coupon securities
that are "stripped" U.S. Treasury notes and bonds. See "Investment Objectives
and Policies of the Portfolios and Risk Factors--Other Investment Policies and
Risk Factors and Risk Factors--Zero Coupon Securities.
DEBT SECURITIES
Each Portfolio may invest in corporate and other debt obligations. The yield
of a fixed income security depends on a variety of factors, including general
fixed income security market conditions, the financial condition of the issuer,
the size of the particular offering, the maturity, credit quality and rating of
the issue and expectations regarding changes in tax rates. Generally, the
longer the maturity of a fixed income security, the higher the rate of interest
paid and the greater the volatility. Furthermore, the value of the securities
held by a Portfolio will rise when interest rates decline. Conversely, when in-
terest rates rise, the value of fixed income securities may be expected to de-
cline.
Except where otherwise indicated, each Portfolio will invest in securities
rated A or better by any NRSRO or determined by the Ad-
23
<PAGE>
viser to be of comparable quality. PACE Strategic Fixed Income Investments and
PACE Municipal Fixed Income Investments may invest in medium-rated securities
(i.e., rated Baa by Moody's or BBB by S&P). Moody's considers securities rated
Baa to have speculative characteristics. PACE Strategic Fixed Income Invest-
ments also may invest in lower-rated securities (i.e., rated lower than Baa by
Moody's or lower than BBB by S&P). PACE Strategic Fixed Income Investments,
however, will not purchase a security rated lower than B by Moody's or S&P.
Changes in economic conditions or other circumstances are more likely to lead
to a weakened capacity for such securities to make principal and interest pay-
ments than is the case for higher grade debt securities. Debt securities rated
below investment grade are deemed by these agencies to be predominantly specu-
lative with respect to the issuer's capacity to pay interest and repay princi-
pal and may involve major risk exposure to adverse conditions and, as previ-
ously stated, are commonly referred to as "junk bonds."
PACE Money Market Investments, PACE Government Securities Fixed Income In-
vestments, PACE Intermediate Fixed Income Investments, PACE Strategic Fixed In-
come Investments, PACE Municipal Fixed Income Investments and PACE Global Fixed
Income Investments are permitted to purchase debt securities that are not rated
by an NRSRO but that the Portfolio's Adviser determines to be of comparable
quality to that of rated securities in which it may invest. These securities
are included in the computation of any percentage limitations applicable to
comparably rated securities.
Although the relevant Advisers will attempt to minimize the speculative risks
associated with investments in junk bonds through diversification, credit anal-
ysis and attention to current trends in interest rates and other factors, in-
vestors should carefully review the objectives and policies of PACE Strategic
Fixed Income Investments and consider its ability to assume the investment
risks involved before making an investment.
Ratings of debt securities represent the rating agencies' opinions regarding
their quality, are not a guarantee of quality and may be reduced after a Port-
folio has acquired the security. The Advisers, and in the case of PACE Money
Market Investments, Mitchell Hutchins, would consider such an event in deter-
mining whether the Portfolio should continue to hold the security but may not
be required to dispose of it. Credit ratings attempt to evaluate the safety of
principal and interest payments and do not evaluate the risks of fluctuations
in market value. Also, rating agencies may fail to make timely changes in
credit ratings in response to subsequent events affecting an issuer, so that an
issuer's current financial condition may be better or worse than the rating in-
dicates.
Lower rated debt securities generally offer a higher current yield than that
available from higher grade issues, but they involve higher risks in that they
are especially subject to adverse changes in general economic conditions and in
the industries in which the issuers are engaged, to changes in the financial
condition of the issuers and to price fluctuation in response to changes in in-
terest rates. During periods of economic downturn or rising interest rates,
highly leveraged issuers may experience financial stress, which could adversely
affect their ability to make payments of principal and interest and increase
the possibility of default. In addition, issuers of these securities may not
have more traditional methods of financing available to them and may be unable
to repay debt at maturity by refinancing. The risk of loss due to default by
such issuers is significantly greater, because such securities frequently are
24
<PAGE>
unsecured and subordinated to the prior payment of senior indebtedness.
The market for lower rated securities has expanded in recent years, and its
growth paralleled a long economic expansion. In the past, the prices of many
lower rated debt securities declined substantially, reflecting an expectation
that many issuers of such securities might experience financial difficulties.
As a result, the yields on lower rated debt securities rose dramatically. The
higher yields did not reflect the value of the income stream that holders of
such securities expected, but rather the risk that holders of such securities
could lose a substantial portion of their value as a result of the issuers' fi-
nancial restructuring or default. There can be no assurance that such declines
will not recur. The market for lower rated debt securities generally is thinner
and less active than that for higher quality securities, which may limit a
Portfolio's ability to sell the securities at fair value in response to changes
in the economy or the financial markets. Adverse publicity and investor percep-
tions, whether or not based on fundamental analysis, may also decrease the val-
ues and liquidity of lower rated securities, especially in a thinly-traded mar-
ket.
DURATION
Duration is a measure of the expected life of a fixed income security that
was developed as a more precise alternative to the concept of "term to maturi-
ty." Duration incorporates a bond's yield, coupon interest payments, final ma-
turity and call features into one measure. Duration is one of the fundamental
tools used by the Adviser in portfolio selection for the PACE Government Secu-
rities Fixed Income Investments, PACE Intermediate Fixed Income Investments,
PACE Strategic Fixed Income Investments, PACE Municipal Fixed Income Invest-
ments and PACE Global Fixed Income Investments.
Traditionally, a debt security's "term to maturity" has been used as a proxy
for the sensitivity of the security's price to changes in interest rates (which
is the "interest rate risk" or "volatility" of the security). However, "term to
maturity" measures only the time until a debt security provides its final pay-
ments, taking no account of the pattern of the security's payments prior to ma-
turity. Duration is a measure of the expected life of a fixed income security
on a present value basis. Duration takes the length of the time intervals be-
tween the present time and the time that the interest and principal payments
are scheduled or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any fixed income security with interest payments occurring
prior to the payment of principal, duration is always less than maturity. In
general, all other things being equal, the lower the stated or coupon rate of
interest of a fixed income security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a fixed income
security, the shorter the duration of the security.
Futures, options and options on futures have duration which, in general, are
closely related to the duration of the securities which underlie them. Holding
long futures or call option positions (backed by a segregated account of cash
and cash equivalents) will lengthen a Portfolio's duration by approximately the
same amount that purchasing an equivalent amount of the underlying securities
would.
Short futures or put option positions have durations roughly equal to the
negative duration of the securities that underlie these positions, and have the
effect of reducing portfolio duration by approximately the same amount that
selling an equivalent amount of the underlying securities would.
25
<PAGE>
There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or
more years; however, their interest rate exposure corresponds to the frequency
of the coupon reset. Another example where the interest rate exposure is not
properly captured by duration is the case of mortgage pass-through securities.
The stated final maturity of such securities is generally 30 years, but current
prepayment rates are more critical in determining the securities' interest rate
exposure. In these and other similar situations, the Adviser will use more so-
phisticated analytical techniques that incorporate the economic life of a secu-
rity into the determination of its interest rate exposure.
MUNICIPAL OBLIGATIONS
Municipal Obligations include, but are not limited to, municipal bonds,
floating rate and variable rate municipal obligations, participation interests
in municipal bonds, tax-exempt commercial paper, tender option bonds and short-
term municipal notes. Municipal bonds include IDBs, municipal lease obligations
and certificates of participation therein, put bonds and PABs.
PACE Municipal Fixed Income Investments may invest in a variety of Municipal
Obligations, as described below:
MUNICIPAL BONDS. Municipal bonds are debt obligations issued to obtain funds
for various public purposes that pay interest that is exempt from federal in-
come tax in the opinion of issuer's counsel. The two principal classifications
of municipal bonds are "general obligation" and "revenue" bonds. General obli-
gation bonds are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue bonds are pay-
able only from the revenues derived from a particular facility or class of fa-
cilities or, in some cases, from the proceeds of a special excise tax or other
specific revenue source such as from the user of the facility being financed.
The term "municipal bonds" also includes "moral obligation" issues, which are
normally issued by special purpose authorities. In the case of such issues, an
express or implied "moral obligation" of a related government unit is pledged
to the payment of the debt service, but is usually subject to annual budget ap-
propriations. The term "municipal bonds" also includes municipal lease obliga-
tions, such as leases, installment purchase contracts and conditional sales
contracts and certificates of participation therein. Municipal lease obliga-
tions are issued by state and local governments and authorities to purchase
land or various types of equipment or facilities and may be subject to annual
budget appropriations. The Portfolio generally invests in municipal lease obli-
gations through certificates of participation. The Portfolio does not presently
intend to purchase municipal lease obligations, or certificates of participa-
tion therein, that are not rated by Moody's or S&P.
MUNICIPAL LEASES, CERTIFICATES OF PARTICIPATION AND OTHER PARTICIPATION
INTERESTS. A municipal lease is an obligation in the form of a lease or in-
stallment purchase contract which is issued by a state or local government to
acquire equipment and facilities. Income from such obligations is generally ex-
empt from state and local taxes in the state of issuance (as well as regular
federal income tax). Municipal leases frequently involve special risks not nor-
mally associated with general obligation or revenue bonds. Leases and install-
ment purchase or conditional sale contracts (which normally provide for title
to the leased asset to pass eventually to the governmental issuer) have evolved
as a means for governmental issuers to acquire property and equipment without
meeting the constitutional and statutory requirements for
26
<PAGE>
the issuance of debt. The debt issuance limitations are deemed to be inapplica-
ble because of the inclusion in many leases or contracts of "non-appropriation"
clauses that relieve the governmental issuer of any obligation to make future
payments under the lease or contract unless money is appropriated for such pur-
pose by the appropriate legislative body on a yearly or other periodic basis.
Thus, the Portfolio's investment in municipal leases will be subject to the
special risk that the governmental issuer may not appropriate funds for lease
payments.
In addition, such leases or contracts may be subject to the temporary abate-
ment of payments in the event the issuer is prevented from maintaining occu-
pancy of the leased premises or utilizing the leased equipment. Although the
obligations may be secured by the leased equipment or facilities, the disposi-
tion of the property in the event of nonappropriation or foreclosure might
prove difficult, time consuming and costly, and result in an unsatisfactory or
delayed recoupment of the Portfolio's original investment.
Certificates of participation represent undivided interests in municipal
leases, installment purchase contracts or other instruments. The certificates
are typically issued by a trust or other entity which has received an assign-
ment of the payments to be made by the state or political subdivision under
such leases or installment purchase contracts.
Certain municipal lease obligations and certificates of participation may be
deemed illiquid for purposes of the Portfolio's limitations on investments in
illiquid securities. Other municipal lease obligations and certificates of par-
ticipation acquired by the Portfolio may be determined by the Adviser, pursuant
to guidelines adopted by the Trustees of the Trust, to be liquid securities for
purposes of the Portfolio's limitation on investments in illiquid securities.
In determining the liquidity of municipal leases obligations and certificates
or participation, the Adviser will consider a variety of factors including: (1)
the willingness of dealers to bid for the security; (2) the number of dealers
willing to purchase or sell the obligation and the number of other potential
buyers; (3) the frequency of trades or quotes for the obligation; and (4) the
nature of the marketplace trades. In addition, the Adviser will consider fac-
tors unique to particular lease obligations and certificates of participation
affecting the marketability thereof. These include the general creditworthiness
of the issuer, the importance to the issuer of the property covered by the
lease and the likelihood that the marketability of the obligation will be main-
tained throughout the time the obligation is held by the Portfolio. The Portfo-
lio may not invest more than 5% of its net assets in municipal leases.
PACE Municipal Fixed Income Investments may purchase participations in munic-
ipal securities held by a commercial bank or other financial institution. Such
participations provide the Portfolio with the right to a pro rata undivided in-
terest in the underlying municipal securities. In addition, such participations
generally provide the Portfolio with the right to demand payment, on not more
than seven days notice, of all or any part of the Portfolio's participation in-
terest in the underlying municipal security, plus accrued interest.
INDUSTRIAL DEVELOPMENT BONDS AND PRIVATE ACTIVITY BONDS. IDBs and PABs are
issued by or on behalf of public authorities to finance various privately oper-
ated facilities, such as airport or pollution control facilities. These obliga-
tions are included within the term "municipal bonds" if the interest paid
thereon is exempt from federal income tax in the opinion of the bond issuer's
counsel. IDBs and PABs are in most cases revenue bonds and thus are
27
<PAGE>
not payable from the unrestricted revenues of the issuer. The credit quality of
IDBs and PABs is usually directly related to the credit standing of the user of
the facilities being financed. IDBs issued after August 15, 1986 generally are
considered PABs, and, to the extent the Portfolio invests in such PABs, share-
holders generally will be required to include a portion of their exempt-inter-
est dividends from that Portfolio in calculating their liability for the AMT.
See "Dividends and Taxes." The Portfolio is authorized to invest more than 25%
of its net assets in IDBs and PABs.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS. See "Investment Objectives and
Policies of the Portfolios and Risk Factors--Other Investment Policies and Risk
Factors--Floating Rate and Variable Rate Obligations."
PARTICIPATION INTERESTS. Participation interests are interests in municipal
bonds, including IDBs and PABs, and floating and variable rate obligations,
that are owned by banks. These interests carry a demand feature permitting the
holder to tender them back to the bank, which demand feature generally is
backed by an irrevocable letter of credit or guarantee of the bank. The credit
standing of such bank affects the credit quality of the participation inter-
ests.
TENDER OPTION BONDS. Tender option bonds are long-term Municipal Obligations
sold by a bank subject to a "tender option" that gives the purchaser the right
to tender them to the bank at par plus accrued interest at designated times
(the tender option). The tender option may be exercisable at intervals ranging
from bi-weekly to semi-annually, and the interest rate on the bonds is typi-
cally reset at the end of the applicable interval in order to cause the bonds
to have a market value that approximates their par value. The tender option
generally would not be exercisable in the event of a default on, or significant
downgrading of, the underlying Municipal Obligations. Therefore, the Portfo-
lio's ability to exercise the tender option will be affected by the credit
standing of both the bank involved and the issuer of the underlying securities.
PUT BONDS. A put bond is a municipal bond which gives the holder the uncondi-
tional right to sell the bond back to the issuer or a remarketing agent at a
specified price and exercise date, which is typically well in advance of the
bond's maturity date. The obligation to purchase the bond on the exercise date
may be supported by a letter of credit or other credit support arrangement from
a bank, insurance company or other financial institution, the credit standing
of which affects the credit quality of the obligation.
TAX-EXEMPT COMMERCIAL PAPER AND SHORT-TERM MUNICIPAL NOTES. Tax-exempt com-
mercial paper and short-term municipal notes include tax anticipation notes,
bond anticipation notes, revenue application notes and other forms of short-
term loans. Such notes are issued with a short-term maturity in anticipation of
the receipt of tax funds, the proceeds of bond placements and other revenues.
YIELDS AND RISK FACTORS. The yield of a municipal security depends on a vari-
ety of factors, including general municipal and fixed income security market
conditions, the financial condition of the issuer, the size of the particular
offering, the maturity, credit quality and rating of the issue and expectations
regarding changes in tax rates. Generally, the longer the maturity of a munici-
pal security, the higher the rate of interest paid and the greater the volatil-
ity. Further, if general market interest rates are increasing, the prices of
Municipal Obligations ordinarily will decrease and, if rates decrease, the op-
posite generally will be true. The Portfolio may invest in Municipal Obliga-
tions
28
<PAGE>
with a broad range of maturities, based on the Adviser's judgment of current
and future market conditions as well as other factors, such as the Portfolio's
liquidity needs. Accordingly, the average dollar-weighted duration of the Port-
folio's portfolio may vary.
Future federal, state and local laws may adversely affect the tax-exempt sta-
tus of interest on the Portfolio's portfolio securities or of the exempt-inter-
est dividends paid by the Portfolio, extend the time for payment of principal
or interest or otherwise constrain enforcement of such obligations. Opinions
relating to the validity of Municipal Obligations and the tax-exempt status of
interest thereon are rendered by the issuer's bond counsel at the time of issu-
ance; the Adviser will rely on such opinions without independent investigation.
See "Investment Objectives and Policies of the Portfolio--Other Investment Pol-
icies and Risk Factors--Debt Securities" for further discussion of ratings.
MORTGAGE-BACKED SECURITIES
PACE Government Securities Fixed Income Investments, PACE Intermediate Fixed
Income Investments and PACE Strategic Fixed Income Investments may each invest
in mortgage-backed securities. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and pay-
able from, mortgage loans secured by real property and include single- and mul-
ti-class pass-through securities and collateralized mortgage obligations. Mul-
ti-class pass-through securities and collateralized mortgage obligations are
collectively referred to herein as CMOs.
The U.S. government securities in which these three Portfolios may invest in-
clude mortgage-backed securities issued or guaranteed as to the payment of
principal and interest (but not as to market value) by GNMA, FNMA or the FHLMC.
Other mortgage-backed securities in which these three Portfolios may invest are
issued by private issuers, generally originators of and investors in mortgage
loans, including savings associations, mortgage bankers, commercial banks, in-
vestment bankers and special purpose entities (collectively, "Private Mortgage
Lenders"). Payments of principal and interest (but not the market value) of
such private mortgage-backed securities may be supported by pools of mortgage
loans or other mortgage-backed securities that are guaranteed, directly or in-
directly, by the U.S. government or one of its agencies or instrumentalities,
or they may be issued without any government guarantee of the underlying mort-
gage assets but with some form of non-government credit enhancement.
GNMA CERTIFICATES. GNMA guarantees certain mortgage pass-through certificates
("GNMA certificates") that are issued by Private Mortgage Lenders and that rep-
resent ownership interests in individual pools of residential mortgage loans.
These securities are designed to provide monthly payments of interest and prin-
cipal to the investor. Timely payment of interest and principal is backed by
the full faith and credit of the U.S. government. Each mortgagor's monthly pay-
ments to his lending institution on his residential mortgage are "passed
through" to certificateholders such as the Portfolios. Mortgage pools consist
of whole mortgage loans or participations in loans. The terms and characteris-
tics of the mortgage instruments are generally uniform within a pool but may
vary among pools. Lending institutions which originate mortgages for the pools
are subject to certain standards, including credit and other underwriting cri-
teria for individual mortgages included in the pools.
FNMA CERTIFICATES. FNMA facilitates a national secondary market in residen-
tial mortgage loans insured or guaranteed by U.S. gov-
29
<PAGE>
ernment agencies and in privately insured or uninsured residential mortgage
loans (sometimes referred to as "conventional mortgage loans" or "conventional
loans") through its mortgage purchase and mortgage-backed securities sales ac-
tivities. FNMA issues guaranteed mortgage pass-through certificates ("FNMA cer-
tificates"), which represent pro rata shares of all interest and principal pay-
ments made and owed on the underlying pools. FNMA guarantees timely payment of
interest and principal on FNMA certificates. The FNMA guarantee is not backed
by the full faith and credit of the U.S. government.
FHLMC CERTIFICATES. FHLMC also facilitates a national secondary market for
conventional residential and U.S. government-insured mortgage loans through its
mortgage purchase and mortgage-backed securities sales activities. FHLMC issues
two types of mortgage pass-through securities: mortgage participation cer-
tificates ("PCs") and guaranteed mortgage certificates ("GMCs"). Each PC repre-
sents a pro rata share of all interest and principal payments made and owed on
the underlying pool. FHLMC generally guarantees timely monthly payment of in-
terest on PCs and the ultimate payment of principal, but it also has a PC pro-
gram under which it guarantees timely payment of both principal and interest.
GMCs also represent a pro rata interest in a pool of mortgages. These instru-
ments, however, pay interest semi-annually and return principal once a year in
guaranteed minimum payments. The FHLMC guarantee is not backed by the full
faith and credit of the U.S. government.
PRIVATE, RTC AND SIMILAR MORTGAGE-BACKED SECURITIES. Mortgage-backed securi-
ties issued by Private Mortgage Lenders are structured similarly to the CMOs or
single-class mortgage-backed securities issued or guaranteed by GNMA, FNMA and
the FHLMC. Such mortgage-backed securities may be supported by pools of U.S.
government or agency insured or guaranteed mortgage loans or by other mortgage-
backed securities issued by a government agency or instrumentality, but they
generally are supported by pools of conventional (i.e., non-government guaran-
teed or insured) mortgage loans. Since such mortgage-backed securities normally
are not guaranteed by an entity having the credit standing of GNMA, FNMA and
the FHLMC, they normally are structured with one or more types of credit en-
hancement. See "--Types of Credit Enhancement." Such credit enhancements do not
protect investors from changes in the market value of CMOs.
The RTC, which was organized by the U.S. government in connection with the
savings and loan crisis, holds assets of failed savings associations as either
a conservator or receiver for such associations, or it acquires such assets in
its corporate capacity. These assets include, among other things, single family
and multi-family mortgage loans, as well as commercial mortgage loans. In order
to dispose of such assets in an orderly manner, RTC has established a vehicle
registered with the SEC through which it sells mortgage-backed securities. RTC
mortgage-backed securities represent pro rata interests in pools of mortgage
loans that RTC holds or has acquired, as described above and are supported by
one or more of the types of private credit enhancements used by Private Mort-
gage Lenders.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS MORTGAGE PASS-
THROUGHS. CMOs are debt obligations that are collateralized by mortgage loans
or mortgage pass-through securities (such collateral collectively being called
"Mortgage Assets"). CMOs may be issued by Private Mortgage Lenders or by gov-
ernment entities such as FNMA or the FHLMC. Multi-class mortgage pass-through
securities are interests in trusts that are comprised of Mortgage
30
<PAGE>
Assets and that have multiple classes similar to those in CMOs. Unless the con-
text indicates otherwise, references herein to CMOs include multi-class mort-
gage pass-through securities. Payments of principal of, and interest on, the
Mortgage Assets (and in the case of CMOs, any reinvestment income thereon) pro-
vide the funds to pay debt service on the CMOs or to make scheduled distribu-
tions on the multi-class mortgage pass-through securities.
In a CMO, a series of bonds or certificates is issued in multiple classes.
Each class of CMO, also referred to as a "tranche," is issued at a specific
fixed or floating coupon rate and has a stated maturity or final distribution
date. Principal repayments on the Mortgage Assets may cause CMOs to be retired
substantially earlier than their stated maturities or final distribution dates.
Interest is paid or accrues on all classes of a CMO (other than any PO class)
on a monthly, quarterly or semi-annual basis. The princi-pal and interest on
the Mortgage Assets may be allocated among the several classes of a CMO in many
ways. In one structure, payments of principal, including any principal prepay-
ments, on the Mortgage Assets are applied to the classes of a CMO in the order
of their respective stated maturities or final distribution dates so that no
payment of principal will be made on any class of the CMO until all other clas-
ses have an earlier stated maturity or final distribution date that have been
paid in full. In some CMO structures, all or a portion of the interest attrib-
utable to one or more of the CMO classes may be added to the principal amounts
attributable to such classes, rather than passed through to certificateholders
on a current basis, until other classes of the CMO are paid in full.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. These simultaneous payments are taken into
account in calculating the stated maturity date or final distribution date of
each class, which, as with other CMO structures, must be retired by its stated
maturity date or final distribution date but may be retired earlier.
ARM AND FLOATING RATE MORTGAGE-BACKED SECURITIES. ARM mortgage-backed securi-
ties are mortgage-backed securities that represent a right to receive interest
payments at a rate that is adjusted to reflect the interest earned on a pool of
mortgage loans bearing variable or adjustable rates of interest (such mortgage
loans are referred to as "ARMs"). Floating rate mortgage-backed securities are
classes of mortgage-backed securities that have been structured to represent
the right to receive interest payments at rates that fluctuate in accordance
with an index but that generally are supported by pools comprised of fixed-rate
mortgage loans. Because the interest rates on ARM floating rate mortgage-backed
securities are reset in response to changes in a specified market index, the
values of such securities tend to be less sensitive to interest rate fluctua-
tions than the values of fixed-rate securities. See "Investment Policies and
Restrictions--ARM and Floating Rate Mortgage-Backed Securities" in the SAI for
further information on these securities.
TYPES OF CREDIT ENHANCEMENT. To lessen the effect of failures by obligors on
Mortgage Assets to make payments, mortgage-backed securities may contain ele-
ments of credit enhancement. Credit enhancement generally falls into two cate-
gories: (1) liquidity protection and (2) protection against losses resulting
after default by an obligor on the underlying assets and collection of all
amounts recoverable directly from the obligor and through liquidation of the
collateral. Liquidity protection refers to the provision of advances, generally
by the entity administering the pool of assets (usually the bank, savings asso-
ciation or mortgage banker
31
<PAGE>
that transferred the underlying loans to the issuer of the security), to ensure
that the receipt of payments on the underlying pool occurs in a timely fashion.
Protection against losses resulting after default and liquidation ensures ulti-
mate payment of the obligations on at least a portion of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor, from third parties,
through various means of structuring the transaction or through a combination
of such approaches. The Portfolios will not pay any additional fees for such
credit enhancement, although the existence of credit enhancement may increase
the price of a security.
Examples of credit enhancement arising out of the structure of the transac-
tion include "senior-subordinated securities" (multiple class securities with
one or more classes subordinate to other classes as to the payment of principal
thereof and interest thereon, with the result that defaults on the underlying
assets are borne first by the holders of the subordinated class), creation of
"spread accounts" or "reserve funds" (where cash or investments, sometimes
funded from a portion of the payments on the underlying assets, are held in re-
serve against future losses) and "over-collateralization" (where the scheduled
payments on, or the principal amount of, the underlying assets exceed that re-
quired to make payment of the securities and pay any servicing or other fees).
The degree of credit enhancement provided for each issue generally is based on
historical information regarding the level of credit risk associated with the
underlying assets. Delinquency or loss in excess of that anticipated could ad-
versely affect the return on an investment in such a security.
SPECIALLY STRUCTURED CMOS AND NEW TYPES OF MORTGAGE-BACKED SECURITIES. PACE
Government Securities Fixed Income Investments, PACE Intermediate Fixed Income
Investments and PACE Strategic Fixed Income Investments each may invest in in-
terest only ("IO"), principal only ("PO") and other specially structured CMO
classes. No Portfolio will invest more than 5% of its net assets in any combi-
nation of IOs, POs and inverse floating rate securities including those which
are not mortgage-backed and asset backed securities. See "Other Investment Pol-
icies and Risk Factors--Risks of Mortgage-Backed and Asset-Backed Securities."
New types of mortgage-backed securities are developed and marketed from time
to time and, consistent with their investment limitations, the Portfolios ex-
pect to invest in those new types of mortgage-backed securities that the re-
spective Portfolio's Adviser believes may assist the Portfolio in achieving its
investment objective. Similarly, the Portfolios may invest in mortgage-backed
securities issued by new or existing governmental or private issuers other than
those identified above.
ASSET-BACKED SECURITIES
PACE Government Securities Fixed Income Investments, PACE Intermediate Fixed
Income Investments and PACE Strategic Fixed Income Investments may each invest
in asset-backed securities. Asset-backed securities have structural character-
istics similar to mortgage-backed securities. However, the underlying assets
are not first lien mortgage loans or interests therein, but include assets such
as motor vehicle installment loan contracts, home equity loans, leases of vari-
ous types of real and personal property and receivables from revolving credit
(credit card) agreements. Such assets are securitized through the use of trusts
or special purpose corporations. Payments or distributions of principal and in-
terest on asset-backed securities may be guaranteed up to certain
32
<PAGE>
amounts and for a certain time period by a letter of credit or a pool insurance
policy issued by a financial institution unaffiliated with the issuer or other
credit enhancements may be present.
RISKS OF MORTGAGE- AND ASSET-BACKED SECURITIES
The yield characteristics of the mortgage- and asset-backed securities in
which PACE Government Securities Fixed Income Investments, PACE Intermediate
Fixed Income Investments and PACE Strategic Fixed Income Investments may invest
differ from those of traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently on mortgage-
and asset-backed securities (usually monthly) and that principal may be prepaid
at any time because the underlying mortgage loans or other assets generally may
be prepaid at any time. As a result, if a Portfolio purchases these securities
at a premium, a prepayment rate that is faster than expected will reduce yield
to maturity, while a prepayment rate that is slower than expected will have the
opposite effect of increasing yield to maturity. Conversely, if a Portfolio
purchases these securities at a discount faster than expected, prepayments will
increase, while slower than expected prepayments will reduce, yield to maturi-
ty. Amounts available for reinvestment by a Portfolio are likely to be greater
during a period of declining interest rates and, as a result, are likely to be
reinvested at lower interest rates than during a period of rising interest
rates. Accelerated prepayments on securities purchased by a Portfolio at a pre-
mium also impose a risk of loss of principal because the premium may not have
been fully amortized at the time the principal is prepaid in full. The market
for privately issued mortgage- and asset-backed securities is smaller and less
liquid than the market for U.S. government mortgage-backed securities.
CMO classes may be specially structured in a manner that provides any of a
wide variety of investment characteristics, such as yield, effective maturity
and interest rate sensitivity. As market conditions change, however, and par-
ticularly during periods of rapid or unanticipated changes in market interest
rates, the attractiveness of the CMO classes and the ability of the structure
to provide the anticipated investment characteristics may be significantly re-
duced. These changes can result in volatility in the market value, and in some
instances reduced liquidity, of the CMO class.
The rate of interest payable on CMO classes may be set at levels that are ei-
ther above or below market rates at the time of issuance, so that the securi-
ties will be sold at a substantial premium to, or at a discount from, par val-
ue. In the most extreme case, one class will be entitled to receive all or a
portion of the interest but none of the principal from the underlying mortgage
assets (the interest-only or "IO" class) and one class will be entitled to re-
ceive all or a portion of the principal but none of the interest (the princi-
pal-only or "PO" class). IOs and POs may also be created from mortgage-backed
securities that are not CMOs. The yields on IOs, POs and other mortgage-backed
securities that are purchased at a substantial premium or discount generally
are extremely sensitive to the rate of principal payments (including prepay-
ments) on the underlying mortgage assets. If the mortgage assets underlying an
IO experience greater than anticipated principal prepayments, an investor may
fail to recoup fully its initial investment even if the security is government
issued or guaranteed or is rated AAA or the equivalent.
Some CMO classes are structured to pay interest at rates that are adjusted in
accordance with a formula, such as a multiple or fraction of the change in a
specified interest rate index, so
33
<PAGE>
as to pay at a rate that will be attractive in certain interest rate environ-
ments but not in others. For example, an inverse floating rate CMO class pays
interest at a rate that increases as a specified interest rate index decreases
but decreases as that index increases. For other CMO classes, the yield may
move in the same direction as market interest rates--i.e., the yield may in-
crease as rates increase and decrease as rates decrease--but may do so more
rapidly or to a greater degree. The market value of such securities generally
is more volatile than that of a fixed rate obligation. Such interest rate for-
mulas may be combined with other CMO characteristics. For example, a CMO class
may be an "inverse IO," on which the holders are entitled to receive no pay-
ments of principal and are entitled to receive interest at a rate that will
vary inversely with a specified index or a multiple thereof.
While the market values of particular securities in which a Portfolio invests
may be volatile, or may become volatile under certain con-ditions, its Adviser
will seek to manage the Portfolio so that the volatility of the Portfolio,
taken as a whole, is consistent with the Portfolio's investment objective. If
the Adviser incorrectly forecasts interest rate changes or other factors that
may affect the volatility of securities held by the Portfolio, the Portfolio's
ability to meet its investment objective may be reduced.
CONVERTIBLE SECURITIES
PACE Strategic Fixed Income Investments, PACE Large Company Value Equity In-
vestments, PACE Large Company Growth Equity Investments, PACE Small/Medium Com-
pany Value Equity Investments, PACE Small/Medium Company Growth Equity Invest-
ments, PACE International Equity Investments and PACE International Emerging
Markets Equity Investments each may invest in convertible securities. A con-
vertible security is a bond, debenture, note, preferred stock or other security
that may be converted into or exchanged for a prescribed amount of common stock
of the same or a different issuer within a particular period of time at a spec-
ified price or formula. A convertible security entitles the holder to receive
interest paid or accrued on debt or dividends paid on preferred stock until the
convertible security matures or is redeemed, converted or exchanged. Convert-
ible securities have unique investment characteristics in that they generally
(1) have higher yields than common stocks, but lower yields than comparable
non-convertible securities, (2) are less subject to fluctuation in value than
the underlying stock because they have fixed income characteristics, and (3)
provide the potential for capital appreciation if the market price of the
underlying common stock increases. While no securities investment is without
some risk, investments in convertible securities generally entail less risk
than the issuer's common stock, although the extent to which such risk is re-
duced depends in large measure upon the degree to which the convertible secu-
rity sells above its value as a fixed income security.
LOWER RATED CONVERTIBLE SECURITIES
PACE Large Company Value Equity Investments may invest up to 10% of its total
assets in convertible securities that are rated below investment grade but no
lower than B by S&P or Moody's or comparably rated by another NRSRO, or if not
rated by an NRSRO, determined by its Adviser to be of comparable quality. Con-
vertible securities rated below investment grade are commonly referred to as
"junk bonds" and are deemed by the NRSROs to be predominantly speculative and
may involve significant risk exposure to adverse conditions.
34
<PAGE>
Lower rated convertible securities generally offer a higher current yield
than that available from higher grade issues, but they involve higher risks,
in that they are especially subject to adverse changes in general economic
conditions and in the industries in which the issuers are engaged, to changes
in the financial condition of the issuers and to price fluctuations in re-
sponse to changes in interest rates. During periods of economic downturn or
rising interest rates, highly leveraged issuers may experience financial
stress, which could adversely affect their ability to make payments of princi-
pal and interest (or, in the case of convertible preferred stock, dividends)
and increase the possibility of default. In addition, such issuers may not
have more traditional methods of financing available to them, and may be un-
able to repay debt at maturity by refinancing. The risk of loss due to default
by such issuers is significantly greater, because such securities frequently
are unsecured and subordinated to the prior payment of senior indebtedness.
HEDGING AND RELATED STRATEGIES
Each Portfolio except PACE Money Market Investments, PACE Municipal Fixed
Income Investments, PACE Large Company Growth Equity Investments and PACE
Small/Medium Company Value Equity Investments may use options (both exchange-
traded and OTC) and futures contracts to attempt to enhance income and return
and may attempt to reduce the overall risk of its investments (hedge) by using
options, options on futures contracts and futures contracts. A Portfolio may
use these instruments to enhance income or return--for example, to change the
Portfolio's exposure from one interest rate to another or from one foreign
currency to another. This can be seen as hedging or speculation depending on
the effect of the instrument, because the Portfolio is using these instruments
to change the underlying characteristic(s) of its portfolio or of particular
positions in the portfolio. These strategies may be used by certain Portfolios
in an attempt to manage their foreign currency exposure, the average duration
of PACE Government Securities Fixed Income Investments, PACE Intermediate
Fixed Income Investments, PACE Strategic Fixed Income Investments and PACE
Global Fixed Income Investments, and other risks of a Portfolio's investments
that can cause fluctuations in its net asset value. Each Portfolio's ability
to use these strategies may be limited by market conditions, regulatory limits
and tax considerations. Appendix A to this Prospectus describes the hedging
instruments that these Portfolios may use, and the SAI contains further infor-
mation on these strategies.
PACE Strategic Fixed Income Investments, PACE Global Fixed Income Invest-
ments, PACE International Equity Investments and PACE International Emerging
Markets Equity Investments may each enter into forward currency contracts, buy
or sell foreign currency futures contracts, write (sell) and purchase call or
put options on securities, currencies and securities indices, buy or sell in-
terest rate futures contracts and (except for PACE Strategic Fixed Income In-
vestments and PACE Global Fixed Income Investments) stock index futures con-
tracts and purchase put and call options or write call or put options on such
contracts for hedging and income and return enhancement purposes. Each Portfo-
lio except PACE Money Market Investments, PACE Municipal Fixed Income Invest-
ments, PACE Large Company Growth Equity Investments and PACE Small/Medium Com-
pany Value Equity Investments may enter into options and futures contracts
that approximate (but do not exceed) the full value of the Portfolio.
PACE Strategic Fixed Income Investments, PACE Global Fixed Income Invest-
ments, PACE International Equity Investments and PACE International Emerging
Market Equity Invest
35
<PAGE>
ments may enter into forward currency contracts for the purchase or sale of a
specified currency at a specified future date either with respect to specific
transactions or with respect to portfolio positions. For example, when the Ad-
viser anticipates making a currency exchange transaction in connection with the
purchase or sale of a security, a Portfolio may enter into a forward contract
in order to set the exchange rate at which the transaction will be made. A
Portfolio also may enter into a forward contract to sell an amount of a foreign
currency approximating the value of some or all of the Portfolio's securities
denominated in such currency. Each Portfolio may use forward contracts in one
currency or a basket of currencies to hedge against fluctuations in the value
of an-other currency when the Adviser anticipates there will be a correlation
between the two and may use forward currency contracts to shift a Portfolio's
exposure to foreign currency fluctuations from one country to another. The pur-
pose of entering into these contracts is to minimize the risk to the Portfolios
from adverse changes in the relationship between the U.S. dollar and foreign
currencies.
PACE Government Securities Fixed Income Investments and PACE Strategic Fixed
Income Investments may enter into interest rate protection transactions, in-
cluding interest rate swaps and interest rate caps, collars and floors for
hedging and income and return enhancement purposes. For example, a Portfolio
may enter into interest rate protection transactions to preserve a return or
spread on a particular investment or portion of its portfolio or to protect
against any increase in the price of securities the Portfolio anticipates pur-
chasing at a later date. A Portfolio will enter into interest rate protection
transactions only with banks and recognized securities dealers believed by its
Adviser to present minimal credit risks in accordance with guidelines estab-
lished by the Trust's board of trustees. A Portfolio may enter into interest
rate protection transactions that approximate (but do not exceed) the full
value of the Portfolio.
The Portfolios might not employ any of the strategies described above, and
there can be no assurance that any strategy used will succeed. If its Adviser
incorrectly forecasts interest rates, currency exchange rates, market values or
other economic factors in utilizing a strategy for a Portfolio, the Portfolio
might have been in a better position had it not hedged at all. The use of these
strategies involves certain special risks, including (1) the fact that skills
needed to use hedging instruments are different from those needed to select the
Portfolio's securities, (2) possible imperfect correlation, or even no correla-
tion, between price movements of hedging instruments and price movements of the
investments being hedged, (3) the fact that, while hedging strategies can re-
duce the risk of loss, they can also reduce the opportunity for gain, or even
result in losses, by offsetting favorable price movements in hedged investments
and (4) the possible inability of a Portfolio to sell a portfolio security at a
disadvantageous time, due to the need for the Portfolio to maintain "cover" or
to segregate securities in connection with hedging transactions and the possi-
ble inability of a Portfolio to close out or to liquidate its hedged position.
New financial products and risk management techniques continue to be devel-
oped. Each Portfolio may use these instruments and techniques to the extent
consistent with its investment objectives and regulatory and federal tax con-
siderations.
FOREIGN SECURITIES
PACE Strategic Fixed Income Investments, PACE Global Fixed Income
Investments, PACE International Equity Investments and PACE International
Emerging Markets Equity Investments may each invest in foreign debt securities,
including securities of foreign
36
<PAGE>
corporations, obligations of foreign branches of U.S. banks and securities
issued by foreign governments. PACE Small/Medium Company Growth Equity
Investments may invest up to 5% of its assets in foreign securities.
Investments in foreign securities involve risks relating to political and
economic developments abroad, as well as those that result from the differences
between the regulations to which U.S. and foreign issuers and markets are sub-
ject. These risks may include expropriation, confiscatory taxation, limitations
on the use or transfer of Portfolio assets and political or social instability
or diplomatic developments. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments positions. Securities of many foreign is-
suers may be less liquid and their prices more volatile than those of securi-
ties of comparable U.S. companies. These risks are often heightened for invest-
ments in emerging countries.
In addition, substantial limitations may exist in certain countries with re-
spect to a Portfolio's ability to repatriate investment income, capital or the
proceeds of sales of securities by foreign investors. The Portfolio could be
adversely affected by delays in, or a refusal to grant, any required government
approval for repatriation of capital, as well as by the application to the
Portfolio of any restrictions on investments.
The securities markets of many of the emerging countries in which a Portfolio
may invest are substantially smaller, less developed, less liquid and more vol-
atile than the securities markets of the United States and other more developed
countries. Disclosure and regulatory standards in many respects are less strin-
gent than in the U.S. and other major markets. There also may be a lower level
of monitoring and regulation of emerging markets and the activities of invest-
ors in such markets, and enforcement of existing regulations has been extremely
limited.
Many of the foreign securities held by a Portfolio will not be registered
with the SEC, nor will the issuers thereof be subject to SEC reporting require-
ments. Accordingly, there may be less publicly available information concerning
foreign issuers of securities held by a Portfolio than is available concerning
U.S. companies. Foreign companies, and in particular, companies in smaller and
emerging countries are not generally subject to uniform accounting, auditing
and financial reporting standards or to other regulatory requirements compara-
ble to those applicable to U.S. companies. A Portfolio's net investment income
and/or capital gains from its foreign investment activities may be subject to
non-U.S. withholding taxes that, if not recoverable by a Portfolio, may reduce
the Portfolio's return.
Additionally, because foreign securities ordinarily will be denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect a Portfolio's net asset value, the value of dividends and in-
terest earned, gains and losses realized on the sale of securities and net in-
vestment income to be distributed to shareholders by a Portfolio. If the value
of a foreign currency rises against the U.S. dollar, the value of Portfolio as-
sets denominated in such currency will increase; correspondingly, if the value
of a foreign currency declines against the U.S. dollar, the value of Portfolio
assets denominated in such currency will decrease. The exchange rates between
the U.S. dollar and other currencies can be volatile and are determined by fac-
tors such as supply and demand in the currency exchange markets, international
balances of payments, gov-
37
<PAGE>
ernment intervention, speculation and other economic and political conditions.
Any of these factors could affect a Portfolio.
The costs attributable to foreign investing that a Portfolio must bear fre-
quently are higher than those attributable to domestic investing. For example,
the cost of maintaining custody of foreign securities exceeds custodian costs
for domestic securities, and transaction and settlement costs of foreign in-
vesting also frequently are higher than those attributable to domestic invest-
ing. Costs associated with the exchange of currencies also make foreign invest-
ing more expensive than domestic investing. Investment income on certain for-
eign securities in which a Portfolio may invest may be subject to foreign with-
holding or other govern-ment taxes that could reduce the return of these secu-
rities. Tax treaties between the United States and foreign countries, however,
may reduce or eliminate the amount of foreign tax to which a Portfolio would be
subject. Foreign markets have different clearance and settlement procedures;
and in certain markets there have been times when settlements have failed to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Delays in settlement could result in temporary peri-
ods when assets of a Portfolio are uninvested and no return is earned thereon.
The inability of a Portfolio to make intended security purchases due to settle-
ment problems could cause the Portfolio to miss attractive investment opportu-
nities. Inability to dispose of a portfolio security due to settlement problems
could result either in losses to a Portfolio due to subsequent declines in the
value of such portfolio security or, if a Portfolio has entered into a contract
to sell the security, could result in possible liability to the purchaser.
In addition to purchasing securities of foreign issuers in foreign markets, a
Portfolio may invest in ADRs, European Depository Receipts ("EDRs") or other
securities convertible into securities of corporations based in foreign coun-
tries. These securities may not necessarily be denominated in the same currency
as the securities into which they may be converted. Generally, ADRs, traded in
registered form, are denominated in U.S. dollars and are designed for use in
the U.S. securities markets, and EDRs, in bearer form, may be denominated in
other currencies and are designed for use in European securities markets. ADRs
are receipts typically issued by a U.S. bank or trust company evidencing owner-
ship of underlying securities. EDRs are European receipts evidencing a similar
arrangement. For purposes of a Portfolio's investment policies, ADRs and EDRs
are deemed to have the same classifica-tion as the underlying securities they
represent. Thus, an ADR or EDR evidencing ownership of common stock will be
treated as common stock.
FOREIGN GOVERNMENT SECURITIES
PACE Strategic Fixed Income Investments, PACE Global Fixed Income Invest-
ments, PACE International Equity Investments and PACE International Emerging
Markets Equity Investments may each invest in foreign government securities.
The foreign government securities in which the Portfolios may invest generally
consist of obligations supported by national, state or provincial governments
or similar political subdivisions. Foreign government securities also include
Brady Bonds and debt obligations of supranational entities, which include in-
ternational organizations designated or supported by governmental entities to
promote economic reconstruction or development, international banking institu-
tions and related government agencies. Examples include the World Bank, the Eu-
ropean Coal and Steel Community, the Asian Development Bank and the Inter-Amer-
ican Development Bank. See
38
<PAGE>
"Investment Policies and Restrictions--Brady Bonds" in the SAI for further dis-
cussion of risks involved when investing in Brady Bonds.
Foreign government securities also include debt securities of "quasi-govern-
mental agencies" and debt securities denominated in multinational currency
units of an issuer (including supranational issuers). An example of a multina-
tional currency unit is the European Currency Unit ("ECU"). An ECU represents
specified amounts of the currencies of certain member states of the European
Community. Debt securities of quasi-governmental agencies are issued by enti-
ties owned by either a national, state or equivalent government or are obliga-
tions of a political unit that is not backed by the national government's full
faith and credit and general taxing powers. Foreign government securities also
include mortgage-related securities issued or guaranteed by national, state or
provincial governmental instrumentalities, including quasi-governmental agen-
cies.
Investments in foreign government debt securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment
of the debt may be unable or unwilling to pay interest or repay principal when
due in accordance with the terms of such debt, and the Portfolios may have lim-
ited legal recourse in the event of default. Political conditions, especially a
sovereign entity's willingness to meet the terms of its debt obligations, are
of considerable significance.
REPURCHASE AGREEMENTS
Each Portfolio may use repurchase agreements. Repurchase agreements are
transactions in which a Portfolio purchases securities from an approved bank or
securities dealer and simultaneously commits to resell the securities to the
bank or dealer at an agreed-upon date and price reflecting a market rate of in-
terest unrelated to the coupon rate or maturity of the purchased securities.
Repurchase agreements carry certain risks not associated with direct invest-
ments in securities, including possible decline in the market value of the un-
derlying securities and delays and costs to each Portfolio if the other party
to the repurchase agreement becomes insolvent. Each Portfolio intends to enter
into repurchase agreements only with banks and dealers in transactions believed
by its Adviser (or Mitchell Hutchins in the case of PACE Money Market Invest-
ments) to present minimum credit risks in accordance with guidelines estab-
lished by the Trust's board of trustees.
DOLLAR ROLLS AND REVERSE REPURCHASE AGREEMENTS
PACE Government Securities Fixed Income Investments and PACE Strategic Fixed
Income Investments may enter into dollar rolls, in which a Portfolio sells
mortgage-backed or other securities for delivery in the current month and si-
multaneously contracts to purchase substantially similar securities on a speci-
fied future date. In the case of dollar rolls involving mortgage-backed securi-
ties, the mortgage-backed securities that are purchased will be of the same
type and will have the same interest rate as those sold, but will be supported
by different pools of mortgages. The Portfolio forgoes principal and interest
paid during the roll period on the securities sold, but the Portfolio is com-
pensated by the difference between the current sales price and the lower price
for the future purchase as well as by any interest earned on the proceeds of
the securities sold. The Portfolio also could be compensated through the re-
ceipt of fee income equivalent to a lower forward price. At the time a Portfo-
lio enters into a dollar roll, the Trust's custodian will segregate cash or
liquid, high grade debt securities having a value not less than the forward
purchase price.
39
<PAGE>
The Portfolios may also enter into reverse repurchase agreements in which the
Portfolio sells securities to a bank or dealer and agrees to repurchase them at
a mutually agreed date and price. The market value of securities sold under re-
verse repurchase agreements typically is greater than the proceeds of the sale,
and, accordingly, the market value of the securities sold is likely to be
greater than the value of the securities in which the Portfolio invests those
proceeds. Thus, reverse repurchase agreements involve the risk that the buyer
of the securities sold by the Portfolio might be unable to deliver them when
the Portfolio seeks to repurchase. In the event the buyer of securities under a
reverse repurchase agreement files for bankruptcy or becomes insolvent, the
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Portfolio's obligation to repurchase the securities, and
the Portfolio's use of the proceeds of the reverse repurchase agreement may ef-
fectively be restricted pending such decision.
The dollar rolls and reverse repurchase agreements entered into by the Port-
folios normally will be arbitrage transactions in which a Portfolio will main-
tain an offsetting position in securities or repurchase agreements that mature
on or before the settlement date on the related dollar roll or reverse repur-
chase agreement. Since the Portfolio will receive interest on the securities or
repurchase agreements in which it invests the transaction proceeds, such trans-
actions may involve leverage. However, since these securities or repurchase
agreements will mature on or before the settlement date of the related dollar
roll or reverse repurchase agreement, the Advisers believe that these arbitrage
transactions do not present the risks to the Portfolio that are associated with
other types of leverage.
Dollar rolls and reverse repurchase agreements will be considered to be
borrowings and, accordingly, will be subject to the respective Portfolios' lim-
itations on borrowings, which will restrict the aggregate of such transactions
(plus any other borrowings) to 33 1/3% of a Portfolio's total assets. A Portfo-
lio will not enter into dollar rolls or reverse repurchase agreements other
than in arbitrage transactions as described above, in an aggregate amount in
excess of 5% of the Portfolio's total assets. Neither Portfolio currently in-
tends to enter into dollar rolls other than in such arbitrage transactions, and
neither Portfolio currently intends to enter into reverse repurchase agreements
other than in such arbitrage transactions or for temporary or emergency pur-
chases. See "Investment Policies and Restrictions--Reverse Repurchase Agree-
ments" in the SAI.
FLOATING RATE AND VARIABLE RATE OBLIGATIONS
Floating rate and variable rate obligations bear interest at rates that are
not fixed, but that vary with changes in specified market rates or indices. Ac-
cordingly, as interest rates decrease or increase, the potential for capital
appreciation or capital depreciation is less than for fixed rate obligations.
Floating rate or variable rate obligations typically permit the holder to de-
mand payment of principal from the issuer or remarketing agent at par value
prior to matu-rity and may permit the issuer to prepay principal, plus accrued
interest, at its discretion after a specified notice period. Frequently, float-
ing rate or variable rate obligations and/or the demand features thereon are
secured by letters of credit or other credit support arrangements provided by
banks, the credit standing of which affects the credit quality of the obliga-
tions.
ILLIQUID SECURITIES
PACE Global Fixed Income Investments, PACE Small/Medium Company Value Equity
Investments, PACE Small/Medium Company
40
<PAGE>
Growth Equity Investments and PACE International Emerging Markets Equity In-
vestments may each invest up to 15% of its net assets in illiquid securities;
PACE Money Market Investments, PACE Government Securities Fixed Income Invest-
ments, PACE Intermediate Fixed Income Investments, PACE Strategic Fixed Income
Investments, PACE Municipal Fixed Income Investments, PACE Large Company Value
Equity Investments and PACE Large Company Growth Equity Investments may each
invest up to 10% of its net assets in illiquid securities. Illiquid securities
include certain cover for OTC options, repurchase agreements and non-marketable
interest bearing time deposits with maturities in excess of seven days and se-
curities whose disposition is restricted under the federal securities laws
(other than "Rule 144A securities" that the Portfolio's Adviser has determined
to be liquid under procedures approved by the Trust's board of trustees). Rule
144A establishes a "safe harbor" from the registration requirements of the Se-
curities Act of 1933 ("1933 Act"). Institutional markets for restricted securi-
ties have developed as a result of Rule 144A, providing both readily ascertain-
able values for restricted securities and the ability to liquidate an invest-
ment to satisfy share redemption orders. An insufficient number of qualified
institutional buyers interested in purchasing Rule 144A eligible restricted se-
curities held by a Portfolio, however, could affect adversely the marketability
of such portfolio securities, and the Portfolio might be unable to dispose of
such securities promptly or at favorable prices.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
Each Portfolio may purchase debt securities, including mortgage- and asset-
backed securities, on a "when-issued" basis or may purchase or sell securities
on a "delayed delivery" basis, i.e., for issuance or delivery to the Port-folio
later than the normal settlement date for such securities at a stated price and
yield. The Portfolio generally would not pay for such securities or start earn-
ing interest on them until they are received. However, when a Portfolio under-
takes a when-issued or delayed delivery purchase commitment, it immediately as-
sumes the risks of ownership, including the risk of price fluctuation. Failure
of a counter party to deliver a security purchased by a Portfolio on a when-is-
sued or delayed delivery basis may result in the Portfolio's incurring a loss
or missing an opportunity to make an alternative investment. Depending on mar-
ket conditions, a Portfolio's when-issued and delayed delivery purchase commit-
ments could cause its net asset value per share to be more volatile, because
these securities may increase the amount by which the Portfolio's total assets,
including the value of when-issued and delayed delivery securities held by the
Portfolio, exceeds its net assets. See "Investment Policies and Restrictions--
When-Issued and Delayed Delivery Securities" in the SAI.
ZERO COUPON SECURITIES
PACE Government Securities Fixed Income Investments, PACE Intermediate Fixed
Income Investments, PACE Strategic Fixed Income Investments and PACE Global
Fixed Income Investments may invest in certain zero coupon securities that are
"stripped" U.S. Treasury notes and bonds. PACE Strategic Fixed Income Invest-
ments also may invest in zero coupon securities of corporate issuers and other
securities that are issued with original issue discount ("OID") and payment-in-
kind ("PIK") securities. Federal tax law requires that a holder of a security
with OID accrue a portion of the OID as income each year, even though the
holder may receive no interest payment on the security during the year. Accord-
ingly, although the investing Portfolio will receive no payments on its zero
coupon securities prior to their maturity or disposition, it will
41
<PAGE>
have income attributable to such securities prior to that time. Similarly,
while PIK securities may pay interest in the form of additional securities
rather than cash, that interest must be included in the annual income of PACE
Strategic Fixed Income Investments.
Companies such as the Portfolios, which seek to qualify for pass-through fed-
eral income tax treatment as regulated investment companies ("RICS"), must dis-
tribute substantially all of their net investment income each year, including
non-cash income. Accordingly, each Portfolio will be required to include in its
dividends an amount equal to the income attributable to its zero coupon, other
OID and PIK securities. Those dividends will be paid from the cash assets of a
Portfolio or by liquidation of portfolio securities, if necessary, at a time
when the Portfolio otherwise might not have done so. Zero coupon and PIK secu-
rities usually trade at a substantial discount from their face or par value and
will be subject to greater fluctuations of market value in response to changing
interest rates than debt obligations of comparable maturities that make current
distributions of interest in cash. See "Taxes" in the SAI.
LENDING OF PORTFOLIO SECURITIES
Each Portfolio is authorized to lend up to 33 1/3% of the total value of its
portfolio securities to broker-dealers or institutional investors that its Ad-
viser or the Manager deems qualified. Lending securities enables a Portfolio to
earn additional income, but could result in a loss or delay in recovering the
Portfolio's securities. The borrower must maintain with the Portfolio's custo-
dian collateral either in cash or money market instruments in an amount at
least equal to the market value of the securities loaned, plus accrued interest
and dividends, determined on a daily basis and adjusted accordingly. In deter-
mining whether to lend securities to a particular broker-dealer or institutional
investor, the Adviser will consider, and during the period of the loan will
monitor, all relevant facts and circumstances, including the creditworthiness of
the borrower. Each Portfolio will retain authority to terminate any loans at any
time. A Portfolio may pay reasonable administrative and custodial fees in
connection with a loan and may pay a negotiated portion of the interest earned
on the cash or money market instruments held as collateral to the borrower or
placing broker. A Portfolio will receive reasonable interest on the loan or a
flat fee from the borrower and amounts equivalent to any dividends, interest or
other distributions on the securities loaned. A Portfolio will retain record
ownership of loaned securities to exercise beneficial rights, such as voting and
subscription rights and rights to dividends, interest or other distributions,
when retaining such rights is considered to be in the Portfolio's interest.
PORTFOLIO TURNOVER
The portfolio turnover rate for each of the Portfolios may exceed 100%, al-
though the rate is not expected to exceed 200%. A high portfolio turnover rate
(i.e., 100% or more), may involve correspondingly greater brokerage commissions
and other transaction costs, which will be borne directly by each Portfolio.
See "Portfolio Transactions" in the SAI. In addition, high portfolio turnover
may result in increased short-term capital gains, which when distributed to
shareholders, are treated as ordinary income. See "Dividends and Taxes." PACE
Money Market Investments' portfolio turnover is expected to be zero for regula-
tory reporting purposes.
TEMPORARY DEFENSIVE INVESTMENTS
When the Adviser believes unusual circumstances warrant a defensive posture,
and with the concurrence of the Manager, each
42
<PAGE>
Portfolio temporarily may commit all or any portion of its assets to cash (U.S.
dollars or foreign currencies) or money market instruments of U.S. or foreign
issuers, including repurchase agreements.
PACE Municipal Fixed Income Investments may invest temporarily without limit
in certain taxable securities for defensive purposes. PACE Global Fixed Income
Investments may invest temporarily in securities of only one country, including
the United States for such purposes. PACE International Equity Investments also
may invest temporarily up to 100% of its assets in domestic debt, foreign debt
principally traded in the United States and in foreign securities principally
traded outside of the United States, obligations issued or guaranteed by the
U.S. or a foreign government or their respective agencies, authorities or in-
strumentalities, corporate bonds and sponsored ADRs for such purposes.
OTHER INVESTMENT POLICIES
The Portfolios (except PACE Money Market Investments and PACE Municipal Fixed
Income Investments) also may engage in short sales of securities "against the
box" to defer realization of gains and losses for tax or other purposes. Each
Portfolio may borrow money for temporary or emergency purchases, but not in ex-
cess of 10% of its total assets, however, no Portfolio will purchase securities
when its borrowings exceed 5% of its total assets.
NON-DIVERSIFICATION
PACE Intermediate Fixed Income Investments and PACE Global Fixed Income In-
vestments are "non-diversified," as that term is defined in the 1940 Act, but
each intends to qualify as a RIC for federal income tax purposes. See "Divi-
dends and Taxes." This means, in general, that more than 5% of each Portfolio's
total assets may be invested in securities of one issuer (including a foreign
government), but only if, at the close of each quarter of its taxable year, the
aggregate amount of such holdings does not exceed 50% of the value of its total
assets and no more than 25% of the value of its total assets is invested in the
securities of a single issuer. To the extent that the Portfolio's portfolio at
times may include the securities of a smaller number of issuers than if it were
"diversified" (as defined in the 1940 Act), the Portfolio will be subject to
greater risk with respect to its portfolio securities than if it had invested
in a broader range of securities, because changes in the financial condition or
market assessment of a single issuer may cause greater fluctuation in the Port-
folio's total return and the price of Portfolio shares.
MANAGEMENT
The overall management of the business and affairs of the Trust and the Port-
folios rests with the Trust's board of trustees. The trustees approve all sig-
nificant agreements between the Trust and the persons that furnish services to
the Trust and the Portfolios, including the agreements with the Manager, the
Advisers, the Trust's distributor, custodian and transfer agent. As the Trust's
Manager, Mitchell Hutchins is responsible for the day-to-day business opera-
tions of the Trust.
MANAGER
Mitchell Hutchins Asset Management Inc., 1285 Avenue of the Americas, New
York, New York 10019, is the Manager of the Trust. Mitchell Hutchins is a
wholly owned subsidiary of PaineWebber, which is a wholly owned subsidiary of
Paine Webber Group Inc. ("PW Group"), a publicly held financial services hold-
ing company. Mitchell Hutchins provides investment advisory and portfolio man-
agement services to investment companies, pension
43
<PAGE>
funds and other institutional, corporate and individual clients. As of April
30, 1995, total assets under Mitchell Hutchins' management were approximately
$41.5 billion. As of that date, Mitchell Hutchins served as investment adviser
or sub-adviser to 42 registered investment companies with 77 separate portfo-
lios having aggregate assets of approximately $26.7 billion.
Pursuant to a Management Agreement with the Trust ("Management Agreement"),
Mitchell Hutchins manages the investment operations of the Trust, administers
the Trust's affairs, provides investment advisory services for PACE Money Mar-
ket Investments and is responsible for the selection, subject to review and ap-
proval of the trustees, of Advisers for each of the Portfolios (other than PACE
Money Market Investments) and the review of the Advisers' continued perfor-
mance. See "Manager" in the SAI.
Pursuant to a separate Sub-Advisory Agreement (the "Advisory Agreement") be-
tween Mitchell Hutchins and each Adviser, the Advisers furnish investment advi-
sory services in connection with the investment management of the respective
Portfolios other than PACE Money Market Investments. Each Ad viser is paid a
fee for its services by the Manager out of the fee its collects from the appli-
cable Portfolio. No additional fee is paid by the investor.
Subject to the supervision and direction of the trustees, the Manager pro-
vides to the Trust investment management evaluation services principally by (1)
performing initial review of prospective Advisers for each Portfolio other than
PACE Money Market Investments and (2) monitoring Adviser performance. In evalu-
ating prospective Advisers, the Manager considers, among other factors, each
Adviser's level of expertise, relative performance, consistency of performance
and investment discipline or philosophy. The Manager is responsible for commu-
nicating performance expectations and evaluations to the Advisers and for ulti-
mately recommending to the trustees whether Advisers' contracts should be
renewed, modified or terminated. The Manager reports to the trustees regarding
the results of its evaluation and monitoring functions. For PACE Money Market
Investments, the Manager is responsible for furnishing investment advisory
services to the Portfolio, subject to the supervision of the trustees.
44
<PAGE>
The Manager is also responsible for conducting the general operation of the
Trust except those functions performed by the Advisers, custodian and transfer
agent. Pursuant to the Management Agreement, each Portfolio pays the Manager a
fee comprised of two components: one, for administrative services provided to
each Portfolio, computed daily and paid monthly at the annual rate of 0.20% of
each Portfolio's average daily net assets; and the other, for investment man-
agement services provided to each Portfolio, computed daily and paid monthly at
the annual rate specified below based on the value of the Portfolio's average
daily net assets. The Manager pays each Adviser, out of the investment manage-
ment services fee it receives from the applicable Portfolio, a fee that is com-
puted daily and paid monthly at the annual rate specified below based on the
value of the Portfolio's average daily net assets:
<TABLE>
<CAPTION>
FEE RATE PAID FEE RATE PAID BY
BY PORTFOLIO THE MANAGER TO
PORTFOLIO TO THE MANAGER THE ADVISER
--------- -------------- ----------------
(AS A % OF (AS A % OF
AVERAGE NET AVERAGE NET
ASSETS) ASSETS)
<S> <C> <C>
PACE Money Market Investments.................. 0.15% N/A
PACE Government Securities Fixed Income
Investments................................... 0.50% 0.25%
PACE Intermediate Fixed Income Investments..... 0.40% 0.20%
PACE Strategic Fixed Income Investments........ 0.50% 0.25%
PACE Municipal Fixed Income Investments........ 0.40% 0.20%
PACE Global Fixed Income Investments........... 0.60% 0.35%
PACE Large Company Value Equity Investments.... 0.60% 0.30%
PACE Large Company Growth Equity Investments... 0.60% 0.30%
PACE Small/Medium Company Value Equity
Investments................................... 0.60% 0.30%
PACE Small/Medium Company Growth Equity
Investments................................... 0.60% 0.30%
PACE International Equity Investments.......... 0.70% 0.40%
PACE International Emerging Markets Equity
Investments................................... 0.90% 0.50%
</TABLE>
Investors should be aware that the Manager may be subject to a conflict of
interest when making decisions regarding the retention and compensation of par-
ticular Advisers. However, the Manager's compensation and the Manager's deci-
sions, including the identity of an Adviser and the specific amount of the Man-
ager's compensation to be paid to the Adviser, are subject to review and ap-
proval by the board of trustees and separately by the trustees who are not af-
filiated with the Manager, any of the Advisers or any of their affiliates. In
addition, the Manager is subject to certain standards of fiduciary duty re-
quired by law.
ADVISERS
The Advisers have agreed to the foregoing fees, which are generally lower
than the fees they charge to institutional accounts for which they serve as in-
vestment adviser, partially in recognition of the reduced administrative and
other responsibilities they have undertaken with respect to the Portfolios.
Subject to the monitoring of the Manager and, ultimately, the supervision and
control of the trustees, each Adviser's responsibilities are focused on making
investment decisions for the Portfolio and placing orders to purchase and sell
securities on behalf of the Portfolio in accordance with
45
<PAGE>
the Portfolio's stated investment objective and policies. The Advisers are paid
their fees for management of the Portfolios by Mitchell Hutchins, not the
Trust.
The Trust has filed an exemptive application with the SEC that would permit
the Trust's board of trustees to, without the approval of shareholders: (a) to
employ a new Adviser pursuant to the terms of a new Advisory Agreement, either
as a replacement for an existing Adviser or as an additional Adviser; (b) to
change the terms of an Advisory Agreement; and (c) to continue the employment
of an existing Adviser on the same advisory contract terms where a contract has
been assigned because of a change in control of the Adviser. Shareholders would
still receive notice of such action, including the information concerning the
Adviser that normally is provided in the Prospectus. There can be no assurance
that the SEC will grant the Trust's application.
The following sets forth certain information about each of the Advisers:
PACE MONEY MARKET INVESTMENTS
Mitchell Hutchins is located at 1285 Avenue of the Americas, New York, New
York 10019. It is a wholly owned subsidiary of PaineWebber, which is in turn
wholly owned by PW Group, a publicly owned financial services holding company.
As of March 31, 1995, Mitchell Hutchins was adviser or subadviser of 42 invest-
ment companies with 77 separate portfolios and aggregate assets of approxi-
mately $26.9 billion, of which approximately $17.7 billion consisted of assets
in money market funds. Susan Messina, a senior vice president of Mitchell
Hutchins is primarily responsible for the day-to-day management of PACE Money
Market Investments. Since 1987, Ms. Messina has been a portfolio manager at
Mitchell Hutchins for taxable money market funds.
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS AND PACE STRATEGIC FIXED
INCOME INVESTMENTS
Pacific Investment Management Company ("PIMCO") is located at 840 Newport
Center Drive, Suite 360, Newport Beach, California 92660. It is a subsidiary
partnership of PIMCO Advisors L.P. ("PIMCO Advisors"), a publicly held invest-
ment advisory firm. A majority interest in PIMCO Advisors is held by PIMCO
Partners, G.P. ("PIMCO Partners"), a general partnership between Pacific Finan-
cial Asset Management Corporation, an indirect wholly owned subsidiary of Pa-
cific Mutual Life Insurance Company ("Pacific Mutual"), and PIMCO Partners,
L.P., a limited partnership controlled by the PIMCO Managing Directors. As of
February 28, 1995, PIMCO had over $59.8 billion in assets under management and
was adviser or subadviser of 12 investment companies with 33 portfolios and ag-
gregate assets of approximately $13.1 billion. It has become, since its found-
ing in 1971, one of the largest fixed in come management firms in the nation.
William C. Powers, a PIMCO Managing Director, is primarily responsible for the
day-to-day management of PACE Government Securities Fixed Income Investments.
Since 1991, Mr. Powers has been associated with PIMCO as a senior member of the
fixed income portfolio management group. He was previously associated with Bear
Stearns & Co. as Senior Managing Director specializing in mortgage-backed secu-
rities. Frank B. Rabinovitch, a PIMCO Managing Director, is primarily responsi-
ble for the day-to-day management of PACE Strategic Fixed Income Investments.
Mr. Rabinovitch has been associated with PIMCO for eleven years as a senior
member of the fixed income portfolio management group.
PACE INTERMEDIATE FIXED INCOME INVESTMENTS
Pacific Income Advisers, Inc. ("PIA") is located at 1299 Ocean Avenue, Suite
210, Santa
46
<PAGE>
Monica, California 90401. Lloyd McAdams and Heather U. Baines, who serve as
Chairman and Chief Investment Officer of PIA and President and Chief Executive
Officer, respectively, own PIA's voting securities, which makes each of them
controlling persons of PIA. As of March 31, 1995, PIA had over $1.7 billion in
assets under management. Mr. McAdams is primarily responsible for the day-to-
day management of PACE Intermediate Fixed Income Investments. Since 1986, he
has served as Chairman and Chief Investment Officer of PIA and Chairman and
Chief Executive Officer of Syndicated Capital, Inc.
PACE MUNICIPAL FIXED INCOME INVESTMENTS
Morgan Grenfell Capital Management, Incorporated ("MGCM") is located at 1435
Walnut Street, Philadelphia, Pennsylvania 19102. All of the outstanding voting
stock of MGCM is owned by Morgan Grenfell Asset Management, Ltd., which is a
wholly owned subsidiary of Morgan Grenfell Group plc. Morgan Grenfell Group plc
is an indirect wholly owned subsidiary of Deutsche Bank AG, an international
commercial and investment banking group. As of March 31, 1995, MGCM had over $6
billion in assets under management. It has been active in managing portfolios
of securities at MGCM since 1989 and over 20 years experience in the management
of tax-exempt fixed income investment. David W. Baldt is primarily responsible
for the day-to-day management of PACE Municipal Fixed Income Investments. Since
June 1989, Mr. Baldt has been Executive Vice President and Chief Investment Of-
ficer for fixed income at MGCM.
PACE GLOBAL FIXED INCOME INVESTMENTS
Rogge Global Partners plc ("Rogge Global") is located at 5-6 St. Andrew's
Hill, London, England EC4V 5BY. Olaf Rogge owns in excess of 85% of the voting
securities of Rogge Global, which makes him a controlling person of Rogge Glob-
al. As of March 31, 1995, Rogge Global had over $2.9 billion in assets under
management. It was organized in 1984 and specializes in global fixed income
management. Olaf Rogge, John Graham and Richard Bell are primarily responsible
for the day-to-day management of PACE Global Fixed Income Investments. Mr.
Rogge, who founded Rogge Global in 1984, has been managing global investments
for approximately twenty-three years. Mr. Graham joined Rogge Global Partners,
Inc. in February 1994 and is currently a Director, Portfolio Manager and Ana-
lyst. Prior thereto, he served as a Senior Manager of the Multi-currency Fixed
Income Investment Team at JP Morgan. Mr. Bell joined Rogge Global Partners,
Inc. in June 1990 and serves as a Director, Portfolio Manager and Analyst.
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS
Brinson Partners, Inc. ("Brinson Partners") is located at 209 South LaSalle
Street, Chicago Illinois 60604. Gary P. Brinson is President and Managing Part-
ner of Brinson Partners. Brinson Holdings, Inc., which owns all of the out-
standing stock of Brinson Partners, is wholly owned by Swiss Bank Corporation
("Swiss Bank"). Swiss Bank, with headquarters in Basel, Switzerland, is an in-
ternationally diversified organization with operations in many aspects of the
financial services industry. As of March 31, 1995, Brinson Partners had $40.0
billion in assets under management. It and its predecessor entities have man-
aged domestic and international investment assets since December 31, 1981. Mr.
Jeffrey J. Diermeier, Managing Partner of U.S. Equities, Mr. Robert C. Moore,
Partner and Director of Equity Research, and Mr. John C. Leonard, Partner and
Equity Portfolio Strategy Analyst are the team responsible for the day-to-day
management of PACE Large Company Value Equity Investments. Mr. Diermeier was
formerly Managing Director of Asset Allocation. In addition, Mr. Diermeier and
Mr. Moore have been working together for
47
<PAGE>
over 20 years and both played a key role in the research, design and implemen-
tation of Brinson Partners' proprietary equity valuation model. Prior to join-
ing the firm in 1991, Mr. Leonard worked as a Financial Advisor with Sheffield
Financial Management for 4 years.
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS
Chancellor Capital Management, Inc. ("Chancellor") is located at 1166 Avenue
of the Americas, New York, New York 10036. Chancellor Partners, L.P. ("Chancel-
lor Partners"), of which Chancellor Partners, Inc. ("Chancellor PI") is the
General Partner, is the beneficial owner of at least 51% of Chancellor's common
stock on a fully diluted and converted basis, while USF&G Investment Management
Group, Inc. ("USF&G") is the beneficial owner of 100% of Chancellor's convert-
ible preferred stock which is convertible into and up to 49% of Chancellor's
common stock. Chancellor Partners is a limited partnership controlled by
Chancellor employees to hold their investment in Chancellor. Robert G. Wade,
Jr., who is Chairman of Chancellor's Board of Directors, is the sole share-
holder of Chancellor PI. Accordingly, Mr. Wade, Chancellor Partners and USF&G
are controlling persons of Chancellor. USF&G is a wholly owned subsidiary of
United States Fidelity and Guarantee Company, which is in turn wholly owned by
USF&G Corporation. USF&G is a publicly-held company with interests in, among
other things, the insurance industry. As of March 31, 1995, Chancellor and its
subsidiaries had over $29.2 billion in assets under management. It is one of
the largest employee-owned investment management firms in the nation. Valerie
Malter is primarily responsible for the day- to-day management of PACE Large
Company Growth Equity Investments. Ms. Malter has been a senior equity portfo-
lio manager at Chancellor since 1991 and an equity analyst for Chancellor and
its prede-cessor, Citicorp Investment Management, Inc., since 1984.
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
Brandywine Asset Management, Inc. ("Brandywine") is located at Three
Christina Centre, Suite 1200, 201 N. Walnut Street, Wilmington, Delaware 19801.
William Anthony Hitschler owns 32.5% of Brandywine's voting securities, which
makes him a controlling person of Brandywine. Mr. Hitschler is the President
and Chief Executive Officer of Brandywine. As of March 31, 1995, Brandywine had
approximately $3.0 billion in assets under management. It uses a value-oriented
approach when investing in both domestic and international markets. Henry Otto,
a Managing Director of Brandywine, Michael Jamison, a Managing Director of
Brandywine, and Stephen Tonkovich, a Vice President of Brandywine, are primar-
ily responsible for the day-to-day management of the PACE Small/Medium Company
Value Equity Investments. Mr. Otto is the primary portfolio manager for
Brandywine's small capitalization portfolios and has assisted in designing
quantitative evaluation tools at Brandywine since 1989. Mr. Jamison is Chief
Investment Officer of Brandywine's individual management program, responsible
for managing both equity and balanced portfolios at Brandywine since 1993. From
1988 to 1993, Mr. Jamison was Chief Investment Officer of Mitchell Hutchins As-
set Management Inc. Mr. Tonkovich is assistant portfolio manager for
Brandywine's low price/earnings, small capitalization portfolios and is also
responsible for the on-going development of quantitative tools for value in-
vesting since 1987.
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS
Westfield Capital Management Company, Inc. ("Westfield Capital") is located
at One Fi-
48
<PAGE>
Financial Center, Boston, Massachusetts 02111. Charles Michael Hazard, who
serves as President and Chief Investment Officer of Westfield Capital, owns
54.67% of its voting securities, which makes him a controlling person of West-
field Capital. As of March 31, 1995, Westfield Capital had over $629 million in
assets under management. It has developed an expertise in growth oriented port-
folios since its founding in Boston, Massachusetts in 1989. Michael J. Chapman
is primarily responsible for the day-to-day management of PACE Small/Medium
Company Growth Equity Investments. Since 1990, Mr. Chapman has served as Execu-
tive Vice President, Director of Research and Portfolio Manager of Westfield
Capital.
PACE INTERNATIONAL EQUITY INVESTMENTS
Martin Currie Inc. ("Martin Currie") is located at Saltire Court, 20 Castle
Terrace, Edinburgh, Scotland EHI 2ES. It is a wholly owned subsidiary of Martin
Currie Limited. As of March 31, 1995, Martin Currie had over $5 billion in as-
sets under management. It is one of Scotland's leading independent investment
management companies, and, since its founding in 1881, has developed an expert-
ise in equity investments. Martin Currie uses a team approach in the management
of PACE International Equity Investments. See "Investment Objectives and Poli-
cies of the Portfolios--PACE International Equity Investments" for a descrip-
tion of the Adviser's team approach.
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
Schroder Capital Management International Inc. ("SCMI") is located at 787
Seventh Avenue, New York, New York 10019. It is a wholly owned U.S. subsidiary
of Schroders Incorporated, the wholly owned U.S. holding company subsidiary of
Schroders plc. Schroders plc, which is listed on the London Stock Exchange, is
the holding parent of a large worldwide group of banks and financial serv-ices
companies (referred to as the "Schroder Group"), with associated companies and
branch and representative offices located in seventeen countries worldwide. The
financial services companies of the Schroder Group had approximately $80 bil-
lion in assets under management as of December 31, 1994. As of March 31, 1995,
SCMI had over $13.7 billion in assets under management. Since its founding in
1980, SCMI has developed an expertise in emerging markets investments. Laura E.
Luckyn-Malone, John A. Troiano and Thomas Melendez, with the assistance of an
emerging markets investment committee, are primarily responsible for the day-
to-day management of PACE International Emerging Markets Equity Investments.
Ms. Luckyn-Malone has been a Senior Vice President and Director of SCMI since
February 1990. Mr. Troiano, a Senior Vice President of SCMI since 1991, is also
a Director and President of the Company, and has been employed by various
Schroder Group companies in the portfolio management area since 1988. Mr.
Melendez has been with SCMI since 1994. Prior to joining the Schroder Group he
was a vice president for Latin America with NatWest Securities since 1992,
prior to which he attended Columbia Business School.
FEE WAIVERS AND SUBSIDIES
Mitchell Hutchins has agreed to waive all or a portion of its management fee
and/or to subsidize certain operating expenses of the Portfolios during the
first fiscal year of the Trust to the extent necessary to assure competitive-
ness. See "Trust Expenses." Fee waivers and/or expense subsidies will increase
a Portfolio's yield or total return. See "Performance Information." Fee waivers
and expense subsidies are not guaranteed to continue in future years.
DISTRIBUTOR
Mitchell Hutchins is the distributor of each Portfolio's shares. PaineWebber
is the exclusive
49
<PAGE>
dealer pursuant to a contract with Mitchell Hutchins.
PORTFOLIO TRANSACTIONS
PaineWebber, and any of the Advisers or an affiliated person thereof (an "af-
filiated broker"), each may act as a broker or futures commission merchant
("FCM") for a Portfolio. In order for an affiliated broker to effect any port-
folio transactions for a Portfolio on an exchange or board of trade, the com-
missions, fees or other remuneration received by the affiliated broker must be
reasonable and fair compared to the commissions, fees or other remuneration
paid to other brokers or FCMs in connection with comparable transactions in-
volving similar securities being purchased or sold on an exchange or board of
trade during a comparable period of time. This standard would allow an affili-
ated broker to receive only that remuneration which would be expected to be re-
ceived by an unaffiliated broker or FCM in a similar arm's-length transaction.
VALUATION OF SHARES
The net asset value of each Portfolio's shares fluctuates and is determined
as of the close of regular trading on the NYSE (currently 4:00 p.m., eastern
time) each Business Day. Each Portfolio's net asset value per share is deter-
mined by dividing the value of the securities held by the Portfolio plus any
cash or other assets minus all liabilities by the total number of Portfolio
shares outstanding.
Each Portfolio values its assets based on their current market value when
market quotations are readily available. If this value cannot be established,
assets are valued at fair value as determined in good faith by or under the di-
rection of the Trust's board of trustees. The amortized cost method of valua-
tion is used to value all portfolio securities held by PACE Money Market In-
vestments and short-term dollar-denominated debt obligations of the other Port-
folios with 60 days or less remaining to maturity, unless the board of trustees
determines that this does not represent fair value. All investments denominated
in foreign currencies are valued daily in U.S. dollars based on the then-pre-
vailing exchange rate. It should be recognized that judgment plays a greater
role in valuing lower rated debt securities and restricted or illiquid securi-
ties held by any of the Portfolios because there is less reliable, objective
data available.
PURCHASES
GENERAL
Purchases of shares of a Portfolio by a PACE Program participant must be made
through a securities account maintained with PaineWebber. Payment for Portfolio
shares must be made by check made payable to PaineWebber. No brokerage account
or inactivity fee is charged in connection with a brokerage account through
which an investor purchases shares of a Portfolio.
THE PACE PROGRAM. Shares of the Portfolios currently are available only to
participants in the PACE Program. The PACE Program and the Trust are designed
to assist investors in devising an asset allocation strategy to meet their in-
dividual needs. PaineWebber, through the PACE Program, provides investment ad-
visory services in connection with allocations of assets among the Portfolios
principally by: identifying the investor's risk tolerances and investment ob-
jectives based on information provided by the investor; identifying and recom-
mending in writing a suggested allocation of assets among the Portfolios that
conforms to those tolerances and objectives; providing a monthly account state-
ment; and providing performance data on a quarterly basis. PaineWebber will not
have any investment dis-
50
<PAGE>
cretion over the investor's PACE Program account, except in those circumstances
where PaineWebber will have limited discretion to perform the optional auto-
matic portfolio rebalancing to a new current recommended benchmark allocation
if that service is specifically selected by an investor; all investment deci-
sions ultimately rest with the investor.
Under the PACE Program, PaineWebber investment executives provide services to
the investor that include assisting the investor to identify his or her finan-
cial characteristics, including risk tolerances and investment objectives in
the context of the Portfolios, and assisting the investor to complete an In-
vestor Profile Questionnaire, that can be updated periodically upon the invest-
or's request. PaineWebber uses an investment profile evaluation and asset allo-
cation methodology to assist it in translating investor needs, preferences and
attitudes identified from the questionnaire into suggested portfolio alloca-
tions. A PaineWebber investment executive presents the recommended allocation
to the investor initially and may also review later with the investor monthly
account statements and other information such as the performance data provided
on a quarterly basis, monitor identified changes in the investor's financial
characteristics and assist the investor in preparing a revised questionnaire or
otherwise communicating changes to PaineWebber for re-evaluation. In addition,
for any investor who so directs his or her PaineWebber investment executive,
the investor's holdings in the PACE Program will be automatically rebalanced on
a periodic basis to maintain the investor's designated allocation among the
Portfolios. Screening will be performed quarterly with respect to accounts for
which the investor has elected the rebalancing service, and rebalancing will be
performed for each such account where the deviation from the allocation pre-
scribed by the investor exceeds the uniform threshold. Also, the PACE Program
participant and his/her PaineWebber investment executive will discuss the par-
ticipant's investments in the PACE Program at least annually.
PACE Program participants will pay PaineWebber a quarterly Program Fee at an
annual rate of up to 1.50% of the value of the shares of the Portfolios held in
the participant's PaineWebber account. The quarterly fee will be charged to the
participant's securities account. Qualified plans may make arrangements to pay
the quarterly fee separately. The Program Fee may be reduced at various levels
of assets and for participation by certain individual retirement accounts
("IRAs"), retirement plans for self-employed individuals and employee benefit
plans subject to the Employee Retirement Income Security Act of 1974 (collec-
tively "Plans"). For certain Plans, PaineWebber may provide different services
than those described above for different fees. Fees may be subject to negotia-
tion and fees may differ based upon a number of factors, including, but not
limited to, the type of account, the size of the account, the amount of PACE
Program assets and the number and range of supplemental advisory services to be
provided by PaineWebber investment executives. PaineWebber investment execu-
tives receive a portion of any PACE Program fee paid in consideration of pro-
viding services to participants in the PACE Program. Investors who are fiducia-
ries or otherwise make investment decisions with respect to Plans should con-
sider, in a prudent manner, the relationship of the fees to be paid by the Plan
along with the level of services provided by PaineWebber. The minimum initial
investment in the Trust is $25,000 ($10,000, if the investor becomes a partici-
pant in the PACE Program at the commencement of operations), and any subsequent
investment in the Trust must be at a minimum of $500. The Trust reserves the
right at any time to vary the initial and subsequent investment minimums.
51
<PAGE>
Trustees of the Trust, employees of PaineWebber and Mitchell Hutchins and
their subsidiaries, and family members of these persons who maintain an "em-
ployee related" account at PaineWebber may participate in the PACE Program at a
reduced, or without the imposition of the, PACE Program fee.
Payment for shares of the Trust is due at PaineWebber no later than the third
Business Day after the order is placed (the "Settlement Date"). No order may be
placed until the investor has completed a questionnaire, reviewed the resulting
analysis, made the asset allocation decision and executed necessary PACE Pro-
gram documentation. Investors who make payment prior to the Settlement Date
will designate a temporary investment (such as a non-PACE PaineWebber money
market fund) for the payment until the Settlement Date.
REDEMPTIONS
REDEMPTIONS IN GENERAL
As described below, Portfolio shares may be redeemed at their net asset val-
ue, and redemption proceeds will be paid within three Business Days of the re-
ceipt of a redemption request. Investors may redeem shares through PaineWebber.
Investors may submit redemption requests to their PaineWebber investment ex-
ecutives in person or by telephone, mail or wire. As each Portfolio's agent,
PaineWebber will honor a redemption request by repurchasing Portfolio shares
from a redeeming shareholder at the shares' net asset value next determined af-
ter receipt of the request by PaineWebber's New York City offices. PaineWebber
reserves the right not to honor any redemption request, in which case
PaineWebber promptly will forward the request to the Transfer Agent for redemp-
tion as described below. The redeeming shareholders will be advised by their
account executives if PaineWebber chooses not to honor a redemption request.
Within three Business Days, repurchase proceeds will be credited to the invest-
or's brokerage account or paid by check at the election of the investor.
PaineWebber investment executives firms are responsible for promptly forwarding
redemption requests to PaineWebber's New York City offices.
A redemption request will be executed by the Transfer Agent at the net asset
value next computed after it is received in "good order." "Good order" means
that the request must be accompanied by the following: (1) a letter of instruc-
tion or a stock assignment specifying the number of shares or amount of invest-
ment to be redeemed (or that all shares credited to a Portfolio account by re-
deemed), signed by all registered owners of the shares in the exact names in
which they are registered, (2) a guarantee of the signature of each registered
owner by an eligible institution acceptable to the Transfer Agent and in accor-
dance with SEC rules, such as a commercial bank trust company or member of a
recognized stock exchange, (3) other supporting legal documents for estates,
trusts, guardianships, custodianships, partnerships and corporations and (4)
duly endorsed share certificates, if any. Investors are responsible for ensur-
ing that a request for redemption is received in "good order."
ADDITIONAL INFORMATION ON REDEMPTIONS
An investor in the PACE Program may have redemption proceeds of $1 million or
more wired to the investor's PaineWebber brokerage account or a commercial bank
account designated by the investor. Questions about this option, or redemption
requirements generally, should be referred to the investor's PaineWebber in-
vestment executive. If an investor requests redemption of shares which were
purchased recently, the Trust may delay
52
<PAGE>
payment until it is assured that good payment has been received. In the case
of purchases by check, this can take up to 15 days.
Because the Trust incurs certain fixed costs in maintaining shareholder ac-
counts, the Trust reserves the right to redeem all Portfolio shares in any
PACE Program account of less than $7,500 net asset value. If the Trust elects
to do so, it will notify the investor and provide the investor the opportunity
to increase the amount invested to $7,500 or more within 30 days of the no-
tice. The Trust will not redeem accounts that fall below $7,500 solely as a
result of a reduction in net asset value per share or redemptions to pay PACE
Program fees. Proceeds of an involuntary redemption will be deposited in the
investor's brokerage account unless the PACE Program is instructed to the
contrary.
OTHER SERVICES AND INFORMATION
Investors interested in the services described below should consult their
PaineWebber investment executive or correspondent firms.
AUTOMATIC INVESTMENT PLAN. Certain shareholders may purchase shares of a
Portfolio through an automatic investment plan, under which shareholders may
authorize PaineWebber to place a purchase order each month or quarter for
Portfolio shares in an amount not less than $500 per month or quarter. The
purchase price is paid automatically from cash held in the shareholder's
PaineWebber brokerage account through the automatic redemption of the share-
holder's shares of a PaineWebber money market fund account or through the liq-
uidation of other securities held in the investor's PaineWebber brokerage ac-
count. If the PACE Program assets are held in a PaineWebber RMA account, the
shareholder may arrange for preauthorized automatic fund transfer on a regular
basis, from the shareholder's bank account to the shareholder's RMA account.
Shareholders may utilize this service in conjunction with the automatic in-
vestment plan to facilitate regular PACE investments. This automatic fund
transfer service, however, is not available for retirement plan shareholders.
For further information regarding the automatic investment plan, the RMA ac-
count or the automatic funds transfer service, shareholders should contact
their PaineWebber investment executive or correspondent firm.
AUTOMATIC REDEMPTION PLAN. Shareholders may have PaineWebber redeem a por-
tion of their shares in the PACE Program monthly or quarterly under the auto-
matic redemption plan. Quarterly redemptions are made in March, June, Septem-
ber and December. The amount to be redeemed must be at least $500 per month or
quarter. Purchases of additional shares of a Portfolio concurrent with redemp-
tion are ordinarily disadvantageous to shareholders because of tax liabili-
ties. For retirement plan shareholders, special limitations apply. For further
information regarding the automatic redemption plan, shareholders should con-
tact their PaineWebber investment executive.
INDIVIDUAL RETIREMENT ACCOUNTS. Shares of the Portfolios may be purchased
through IRAs. In addition, a Self-Directed IRA is available through
PaineWebber under which investments may be made in the Portfolios as well as
in other investments available through PaineWebber. The minimum initial in-
vestment in an IRA is $10,000. Investors considering establishing an IRA
should review applicable tax laws and should consult their tax advisers.
EXCHANGES
Shares of a Portfolio may be exchanged without payment of any exchange fee
for shares of another Portfolio at their respective
53
<PAGE>
net asset values. Portfolio shares are not exchangeable with shares of other
PaineWebber mutual funds.
Whether pursuant to a particular request or automatic rebalancing, an ex-
change of shares is treated for federal income tax purposes as a redemption
(sale) of shares given in exchange by the shareholder, and an exchanging share-
holder may, therefore, realize a taxable gain or loss in connection with the
exchange.
For further information regarding the exchange privilege, investors should
contact their PaineWebber investment executive. PaineWebber reserves the right
to reject any exchange request and the exchange privilege may be modified or
terminated after 60 days' written notice to shareholders.
DIVIDENDS AND TAXES
DIVIDENDS
Net investment income, net realized long- and short-term capital gains, and
net realized gains from foreign currency transactions will be determined sepa-
rately for each Portfolio. Dividends from the net investment income of PACE
Money Market Investments are declared daily and paid monthly. Shareholders of
this Portfolio receive dividends from the day following the purchase up to and
including the date of redemption. Dividends from the net in-vestment income of
PACE Government Securities Fixed Income Investments, PACE Intermediate Fixed
Income Investments, PACE Strate- gic Fixed Income Investments, PACE Municipal
Fixed Income Investments and PACE Global Fixed Income Investments are declared
and paid monthly. Dividends from the net investment income of the equity Port-
folios are declared and paid annually. Net investment income includes dividends
and accrued interest and discount, less amortization of premium (except for
PACE Global Fixed Income Investments) and accrued expenses. Each of PACE Stra-
tegic Fixed Income Investments, PACE Intermediate Fixed Income Investments,
PACE Global Fixed Income Investments, PACE International Equity Investments and
PACE International Emerging Markets Equity Investments may, but is not required
to, distribute with any dividend all or a portion of any net realized gains
from foreign currency transactions. While PACE Strategic Fixed Income Invest-
ments, PACE Intermediate Fixed Income Investments and PACE Global Fixed Income
Investments may accompany dividends with distributions of net realized short-
term capital gains and net realized gains from foreign currency transactions,
it is possible that, due to currency-related losses or short-term capital
losses after such a distribution, all or a portion of its distributions may be
treated as a non-tax-able return of capital to shareholders for tax purposes.
Substantially all of each Portfolio's net capital gain (the excess of net
long-term capital gain over net short-term capital loss) if any, together with
any undistributed net realized short-term capital gain and net realized gains
from foreign currency transactions, is distributed annually. A Portfolio may
make additional distributions if necessary to avoid a 4% excise tax on certain
undistributed income and capital gain.
Each Portfolio's dividends and other distributions are paid in additional
Portfolio shares at net asset value unless the shareholder has requested cash
payments. Shareholders who wish to receive dividends and/or other distributions
in cash, either mailed to the shareholder by check or credited to the share-
holder's PaineWebber account, should contact their PaineWebber investment exec-
utive or correspondent firm or complete the appropriate section of the applica-
tion form.
54
<PAGE>
TAXES
Each Portfolio intends to qualify for treatment as a RIC under the Internal
Revenue Code so that it will be relieved of federal income tax on that part of
its investment company taxable income (consisting generally of taxable net in-
vestment income, net gains from certain foreign currency transactions and net
short-term capital gain) and net capital gain that is distributed to its share-
holders.
Dividends from a Portfolio's investment company taxable income (whether paid
in cash or in additional Portfolio shares) generally are taxable to its share-
holders as ordinary income. Distributions of a Portfolio's net capital gain
(whether paid in cash or in additional Portfolio shares), when designated as
such, are taxable to its shareholders as long-term capital gain, regardless of
how long they have held their Portfolio shares. Shareholders not subject to tax
on their income will not be required to pay tax on amounts distributed to them.
Distributions by PACE Municipal Fixed Income Investments that it designates
as "exempt-interest dividends" generally may be excluded from gross income by a
shareholder. These dividends constitute the portion of the Portfolio's aggre-
gate dividends (excluding capital gain distributions) equal to the excess of
the excludable interest over certain amounts disallowed as deductions. In order
to pay exempt-interest dividends to its shareholders, that Portfolio must (and
intends to) satisfy the requirement that, at the close of each quarter of its
taxable year, at least 50% of the value of its total assets consists of securi-
ties the interest on which is exempt from federal income tax.
Interest on indebtedness incurred or continued by a shareholder to purchase
or carry shares of PACE Municipal Fixed Income Investments is not deductible.
If that Portfolio invests in certain PABs, shareholders must include the por-
tion of their exempt-interest dividends from that Portfolio attributable to
those PABs in calculating their liability for the AMT. Corporate shareholders
must include all of their exempt-interest dividends in calculating their lia-
bility for that tax. If that Portfolio realizes capital gains as a result of
market transactions, any distribution of those gains is taxable to its share-
holders. All or a portion of the exempt-interest dividends paid by that Portfo-
lio also may be subject to state or local taxes, or both. Moreover, when a
shareholder redeems shares of that Portfolio, the portions of the redemption
proceeds attributable to undistributed excludable interest will lose its char-
acter as such and may be taxable as part of the redemption proceeds (see be-
low).
The Trust notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed
paid) that year by each Portfolio and of any portion of those dividends that
qualifies for the corporate dividends-received deduction or, in the case of
PACE Municipal Fixed Income Investments, any portion thereof that is a tax
preference item for purposes of the AMT. Under certain circumstances, the no-
tice also will specify the shareholder's share of any foreign taxes paid by the
Portfolio, in which event the shareholder would be required to include in his
gross income his pro rata share of those taxes but might be entitled to claim a
credit or deduction for those taxes.
The Trust is required to withhold 31% of all taxable dividends, capital gain
distributions and (except in the case of PACE Money Market Investments) redemp-
tion proceeds payable to any individuals and certain other noncorporate share-
holders who do not provide the Trust with a correct taxpayer identification
number. Withholding at that rate is also required from taxable dividends and
capital gain distributions payable to such shareholders who otherwise are sub-
ject to backup withholding.
55
<PAGE>
A redemption of shares of a Portfolio may result in taxable gain or loss to
the redeeming shareholder, depending upon whether the redemption proceeds pay-
able to the shareholder are more or less than the shareholder's adjusted basis
for the redeemed shares. An exchange of Portfolio shares for shares of another
Portfolio generally will have similar tax consequences. If shares of a Portfo-
lio are purchased within 30 days before or after redeeming that Portfolio's
shares at a loss, all or a portion of that loss will not be deductible and will
increase the basis of the newly purchased shares.
As noted above, shareholders will pay a PACE Program Fee. For most
shareholders who are individuals, this fee will be treated as a "miscellaneous
itemized deduction" for federal income tax purposes. An individual's
miscellaneous itemized deductions for any taxable year are allowable only to
the extent the aggregate of those deductions exceeds 2% of adjusted gross
income. The deductibility of this fee also is subject to the overall limitation
on itemized deductions for individuals having adjusted gross income in excess
of specified levels which vary depending on their filing status.
The foregoing is only a summary of some of the important federal tax consid-
erations generally affecting each Portfolio and its share- holders; see the SAI
for a further discussion. There may be other federal, state or local tax con-
siderations applicable to a particular investor. Prospective investors are
urged to consult their tax advisers.
PERFORMANCE INFORMATION
Each Portfolio performs a standardized computation of annualized total return
and may show this return in advertisements or promotional materials. Standard-
ized return shows the change in value of a Portfolio investment as a steady
compound annual rate of return. Actual year-by- year returns fluctuate and may
be higher or lower than standardized return. Total return calculations assume
reinvestment of dividends and other distributions.
Each Portfolio may use other total return presentations in conjunction with
standardized return. These may cover the same or different periods as those
used for standardized return and may include cumulative returns, average annual
rates, actual year-by-year rates or any combination thereof.
PACE Municipal Fixed Income Investments, PACE Government Securities Fixed In-
come Investments, PACE Intermediate Fixed Income Investments, PACE Strategic
Fixed Income Investments and PACE Global Fixed Income Investments also may ad-
vertise their yield. Yield (except with regard to PACE Money Market Invest-
ments) reflects investment income net of expenses over a 30-day (or one-month)
period on a Portfolio share, expressed as an annualized percentage of the net
asset value per share at the end of the period. PACE Money Market Investments
may advertise its yield and effective yield. The yield of PACE Money Market In-
vestments is the income on an investment in the Portfolio over a specified sev-
en-day period. This income is then "annualized" (that is, assumed to be earned
each week over a 52-week period) and shown as a percentage of the investment.
The effective yield is calculated similarly but, when annualized, the income
earned is assumed to be reinvested. The effective yield will be higher than the
yield because of the compounding effect of this assumed reinvestment.
In addition to the Portfolio's yield, PACE Municipal Fixed Income Investments
may also show tax-equivalent yield. Tax-equivalent yield shows the yield that
would produce the same income after a stated rate of taxes as the Portfolio
tax-exempt yield (yield excluding taxable
56
<PAGE>
income). Yield computations differ from other accounting methods and therefore
may differ from dividends actually paid or reported net income.
Total return and yield information reflects past performance and does not
necessarily indicate future results. Investment return and principal values
will fluctuate, and proceeds upon redemption may be more or less than a share-
holder's cost. See "Performance Information" in the SAI.
GENERAL INFORMATION
ORGANIZATION
The Trust, Managed Accounts Services Portfolio Trust, is registered with the
SEC as an open-end management investment company and was organized as a Dela-
ware business trust under the laws of the State of Delaware by Certificate of
Trust dated September 9, 1994. The trustees have authority to issue an unlim-
ited number of shares of beneficial interest of separate series, par value
$.001 per share.
The Trust does not hold annual shareholder meetings. Shareholders of record
holding at least two-thirds of the outstanding shares of the Trust may remove a
trustee by votes cast in person or by proxy at a meeting called for that pur-
pose. The trustees are required to call a meeting of shareholders for the pur-
pose of voting upon the question of removal of any trustee when so required in
writing by the shareholders of record holding at least 10% of the Trust's out-
standing shares. Each share of each Portfolio has equal voting rights, except
as noted above. Each share of each Portfolio is entitled to participate equally
in dividends and other distributions and the proceeds of any liquidation. The
shares of each series of the Trust will be voted separately except when an ag-
gregate vote of all series is required by the 1940 Act.
As of the date of the Prospectus, Mitchell Hutchins owned all of the out-
standing shares of beneficial interest of each separate series and, until such
time as the Trust issues shares to the public, Mitchell Hutchins will be deemed
to control the Trust under the 1940 Act.
To avoid additional operating costs and for investor convenience, the Portfo-
lios will not issue share certificates. Ownership of shares of each Portfolio
is recorded on a stock register by the Transfer Agent and shareholders have the
same rights of ownership with respect to such shares as if certificates had
been issued.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company, 1776 Heritage Drive, North Quincy, Mas-
sachusetts 02171, is custodian of each Portfolio's assets and employs foreign
sub-custodians approved by the Trust's board of trustees in accordance with ap-
plicable requirements under the 1940 Act, to provide custody of the Portfolio's
foreign assets, if any. PFPC Inc., a subsidiary of PNC Bank, National Associa-
tion, whose principal business address is 400 Bellevue Parkway, Wilmington,
Delaware 19809, is the Portfolios' transfer and dividend disbursing agent.
CONFIRMATIONS AND STATEMENTS
Shareholders receive confirmations of their purchases and redemptions of
shares of the Portfolios. Participants in the PACE Program will receive a
statement at least monthly that reports all of their Portfolio activity and a
consolidated year-end statement that shows all their Portfolio transactions for
that year. Shareholders also receive audited annual and unaudited semi-annual
financial statements of the applicable Portfolios.
57
<PAGE>
APPENDIX A
The Portfolios may use some or all of the following instruments:
OPTIONS ON EQUITY AND DEBT SECURITIES AND FOREIGN CURRENCIES--A call option
is a short-term contract pursuant to which the purchaser of the option, in re-
turn for a premium, has the right to buy the security or currency underlying
the option at a specified price at any time during the term of the option. The
writer of the call option, who receives the premium, has the obligation, upon
exercise of the option during the option term, to deliver the underlying secu-
rity or currency against payment of the exercise price. A put option is a simi-
lar contract that gives its purchaser, in return for a premium, the right to
sell the underlying security or currency at a specified price during the option
term. The writer of the put option, who receives the premium, has the obliga-
tion, upon exercise of the option during the option term, to buy the underlying
security or currency at the exercise price.
OPTIONS ON SECURITIES INDICES--A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. An index option operates in the same way as a more
traditional securities option, except that exercise of an index option is ef-
fected with cash payment and does not involve delivery of securities. Thus,
upon exercise of an index option, the purchaser will realize, and the writer
will pay, an amount based on the difference between the exercise price and the
closing price of the index.
INDEX FUTURES CONTRACTS--An index futures contract is a bilateral agreement
pursuant to which one party agrees to accept, and the other party agrees to
make, delivery of an amount of cash equal to a specified dollar amount times
the difference between the index value at the close of trading of the contract
and the price at which the futures contract is originally struck. No physical
delivery of the securities comprising the index is made. Generally, contracts
are closed out prior to the expiration date of the contract.
INTEREST RATE AND FOREIGN CURRENCY FUTURES CONTRACTS--Interest rate and for-
eign currency futures contracts are bilateral agreements pursuant to which one
party agrees to make, and the other party agrees to accept, delivery of a spec-
ified type of debt security or currency at a specified future time and at a
specified price. Although such futures contracts by their terms call for actual
delivery or acceptance of debt securities or currency, in most cases the con-
tracts are closed out before the settlement date without the making or taking
of delivery.
OPTIONS ON FUTURES CONTRACTS--Options on futures contracts are similar to op-
tions on securities or currency, except that an option on a futures contract
gives the purchaser the right, in return for the premium, to assume a position
in a futures contract (a long position if the option is a call and a short po-
sition if the option is a put), rather than to purchase or sell a security or
currency, at a specified price at any time during the option term. Upon exer-
cise of the option, the delivery of the futures position to the holder of the
option will be accompanied by delivery of the accumulated balance that repre-
sents the amount by which the market price of the futures contract exceeds, in
the case of a call, or is less than, in the case of a put, the exercise price
of the option on the future. The writer of an option, upon exercise, will as-
sume a short position in the case of a call and a long position in the case of
a put.
FORWARD CURRENCY CONTRACTS--A forward currency contract involves an obliga-
tion to purchase or sell a specified currency at a specified future date, which
may be any fixed number of days from the contract date agreed upon by the par-
ties, at a price set at the time the contract is entered into.
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY......................................................... 2
TRUST EXPENSES............................................................. 8
INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS AND RISK FACTORS...... 12
OTHER INVESTMENT POLICIES AND RISK FACTORS................................. 23
MANAGEMENT................................................................. 44
VALUATION OF SHARES........................................................ 50
PURCHASES.................................................................. 50
REDEMPTIONS................................................................ 52
OTHER SERVICES AND INFORMATION............................................. 53
EXCHANGES.................................................................. 53
DIVIDENDS AND TAXES........................................................ 54
PERFORMANCE INFORMATION.................................................... 56
GENERAL INFORMATION........................................................ 57
APPENDIX A................................................................. A-1
</TABLE>
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
STATEMENT OF ADDITIONAL INFORMATION
Managed Accounts Services Portfolio Trust ("Trust") is an open-end
management investment company currently composed of twelve separate no-load
investment portfolios (each a "Portfolio") professionally managed by Mitchell
Hutchins Asset Management Inc. ("Mitchell Hutchins" or the "Manager"), a
wholly owned subsidiary of PaineWebber Incorporated ("PaineWebber"). For each
Portfolio other than PACE Money Market Investments, advisory services are
provided by an investment adviser (each an "Adviser") monitored by and
unaffiliated with the Manager. For PACE Money Market Investments, advisory
services are provided by the Manager. Mitchell Hutchins also serves as
distributor for the Portfolios. The Portfolios have no prior operating
history. This Statement of Additional Information ("SAI") is not a prospectus
and should be read only in conjunction with the Trust's current Prospectus,
dated June , 1995. You may obtain a copy of the Prospectus by calling any
PaineWebber investment executive or by calling toll- free at 1-800- - .
This SAI is dated June , 1995.
INVESTMENT POLICIES AND RESTRICTIONS
The following supplements the information contained in the Prospectus
concerning the Portfolios' investment policies and limitations.
YIELD FACTORS AND RATINGS. Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Group ("S&P") are private services that provide
ratings of the credit quality of debt obligations, including issues of
municipal securities. A description of the range of ratings assigned to
Portfolios by Moody's and S&P applicable to securities in which one or more of
the Portfolios may invest is included in the Appendix to this SAI. The
Portfolios may use these ratings in determining whether to purchase, sell or
hold a security. These ratings represent Moody's and S&P's opinions as to the
quality of the debt obligations that they undertake to rate. It should be
emphasized, however, that ratings are general and are not absolute standards
of quality. Consequently, obligations with the same maturity, interest rate
and rating may have different market prices. Credit ratings attempt to
evaluate the safety of principal and interest payments and do not evaluate the
risks of fluctuations in market value. Also rating agencies may fail to make
timely changes in credit ratings in response to subsequent events, so that an
issuer's current financial condition may be better or worse than the rating
indicates. In the event any security held by a Portfolio is downgraded below
the rating categories set forth for each Portfolio as discussed in the
Prospectus, the Portfolio's Adviser (or Mitchell Hutchins in the case of PACE
Money Market Investments) will review the security and determine whether to
retain or dispose of that security, provided that a Portfolio will not invest,
at any time, more than 5% (except PACE Strategic Fixed Income Investments,
which may invest up to 20% and, PACE Global Fixed Income Investments and PACE
Large Company Value Equity Investments, which may invest up to 10%) of its net
assets in securities that are rated below investment grade.
<PAGE>
The process by which S&P and Moody's determine ratings for mortgage- and
asset-backed securities includes consideration of the likelihood of the receipt
by security holders of all distributions, the nature of the underlying
securities, the credit quality of the guarantor, if any, and the structural,
legal and tax aspects associated with such securities. Neither of such ratings
represents an assessment of the likelihood that principal prepayments will be
made by mortgagors or the degree to which such prepayments may differ from that
originally anticipated, nor do such ratings address the possibility that
investors may suffer a lower than anticipated yield or that investors in such
securities may fail to recoup fully their initial investment due to
prepayments.
The yields on the money market instruments in which PACE Money Market
Investments invests (such as commercial paper and bank obligations) are
dependent on a variety of factors, including general money market conditions,
conditions in the particular market for the obligation, the financial condition
of the issuer, the size of the offering, the maturity of the obligation and the
ratings of the issue. The ratings of nationally recognized statistical rating
organizations ("NRSROs") represent their opinions as to the quality of the
obligations they undertake to rate. Because ratings are general and are not
absolute standards of quality, obligations with the same rating, maturity and
interest rate may have different market prices. Subsequent to its purchase by a
Portfolio, an issue may cease to be rated or its rating may be reduced. In the
event that a security in PACE Money Market Investments' portfolio ceases to be
a "First Tier Security," as defined in the Prospectus, or the Portfolio's
Adviser becomes aware that a security has received a rating below the second
highest rating by Moody's, S&P or any other NRSRO, Mitchell Hutchins, and in
certain cases the Trust's board of trustees, will consider whether that
Portfolio should continue to hold the obligation. A First Tier Security rated
in the highest short-term rating category by a single NRSRO at the time of
purchase that subsequently receives a rating below the highest rating category
from a different NRSRO will continue to be considered a First Tier Security.
Opinions relating to the validity of municipal securities in PACE Municipal
Fixed Income Investments and to the exemption of interest thereon from federal
income tax and also, when available, from the federal alternative minimum tax
are rendered by bond counsel to the respective issuing authorities at the time
of issuance. Neither the Portfolio nor its Adviser will review the proceedings
relating to the issuance of municipal securities or the basis for such
opinions. An issuer's obligations under its municipal securities are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights
and remedies of creditors (such as the federal bankruptcy laws) and federal,
state and local laws that may be enacted that adversely affect the tax-exempt
status of interest on the municipal securities held by the Portfolio or of the
exempt-interest dividends received by that Portfolio's shareholders, extend the
time for payment of principal or interest, or both, or impose other constraints
upon enforcement of such obligations. There is also the possibility that, as a
result of litigation or other conditions, the power or ability of issuers to
meet their obligations for the payment of principal of and interest on their
municipal securities may be materially and adversely affected.
In addition to ratings assigned to individual bond issues, each Portfolio's
Adviser analyzes interest rate trends and developments that may affect
individual issuers, including factors such as liquidity, profitability and
asset quality. The yields on bonds and other debt securities in which the
Portfolios invest are dependent on a variety of factors, including general
money market conditions, general conditions on the bond market, the financial
condition of the issuer, the size of the offering, the maturity of the
obligation and its rating. There is a wide variation in the quality of bonds,
both
2
<PAGE>
within a particular classification and between classifications. An issuer's
obligations under its bonds are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of bond holders or
other creditors of an issuer; litigation or other conditions may also adversely
affect the power or ability of issuers to meet their obligations for the
payment of interest and principal on their bonds.
OBLIGATIONS OF FOREIGN BANKS AND FOREIGN BRANCHES OF U.S. BANKS. PACE Money
Market Investments may invest in obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve
risks that are different from investments in securities of domestic branches of
domestic banks. These risks may include unfavorable political and economic
developments, withholding taxes, seizure of foreign deposits, currency
controls, interest limitations or other governmental restrictions which might
affect the payment of principal or interest on the securities held by PACE
Money Market Investments. Additionally, there may be less publicly available
information about foreign banks and their branches, as these institutions may
not be subject to the same regulatory requirements as domestic banks.
ADJUSTABLE RATE AND FLOATING RATE MORTGAGE-BACKED SECURITIES. As set forth in
the Prospectus, PACE Government Securities Fixed Income Investments, PACE
Intermediate Fixed Income Investments and PACE Strategic Fixed Income
Investments may invest in adjustable rate mortgage ("ARM") and floating rate
mortgage-backed securities. Because the interest rates on ARM and floating rate
mortgage-backed securities are reset in response to changes in a specified
market index, the values of such securities tend to be less sensitive to
interest rate fluctuations than the values of fixed-rate securities. As a
result, during periods of rising interest rates, ARMs generally do not decrease
in value as much as fixed rate securities. Conversely, during periods of
declining interest rates, ARMs generally do not increase in value as much as
fixed rate securities. ARM mortgage-backed securities represent a right to
receive interest payments at a rate that is adjusted to reflect the interest
earned on a pool of ARMs. ARMs generally provide that the borrower's mortgage
interest rate may not be adjusted above a specified lifetime maximum rate or,
in some cases, below a minimum lifetime rate. In addition, certain ARMs provide
for limitations on the maximum amount by which the mortgage interest rate may
adjust for any single adjustment period. ARMs also may provide for limitations
on changes in the maximum amount by which the borrower's monthly payment may
adjust for any single adjustment period. In the event that a monthly payment is
not sufficient to pay the interest accruing on the ARM, any such excess
interest is added to the mortgage loan ("negative amortization"), which is
repaid through future monthly payments. If the monthly payment exceeds the sum
of the interest accrued at the applicable mortgage interest rate and the
principal payment that would have been necessary to amortize the outstanding
principal balance over the remaining term of the loan, the excess reduces the
principal balance of the ARM. Borrowers under ARMs experiencing negative
amortization may take longer to build up their equity in the underlying
property and may be more likely to default.
The rates of interest payable on certain ARMs, and therefore on certain ARM
mortgage-backed securities, are based on indices, such as the one-year constant
maturity Treasury rate, that reflect changes in market interest rates. Others
are based on indices, such as the 11th District Federal Home Loan Bank Cost of
Funds index, that tend to lag behind changes in market interest rates. The
values of ARM mortgage-backed securities supported by ARMs that adjust based on
lagging indices tend to be somewhat more sensitive to interest rate
fluctuations than those reflecting
3
<PAGE>
current interest rate levels, although the values of such ARM mortgage-backed
securities still tend to be less sensitive to interest rate fluctuations than
fixed-rate securities.
Floating rate mortgage-backed securities are classes of mortgage-backed
securities that have been structured to represent the right to receive interest
payments at rates that fluctuate in accordance with an index but that generally
are supported by pools comprised of fixed-rate mortgage loans. As with ARM
mortgage-backed securities, interest rate adjustments on floating rate
mortgage-backed securities may be based on indices that lag behind market
interest rates. Interest rates on floating rate mortgage-backed securities
generally are adjusted monthly. Floating rate mortgage-backed securities are
subject to lifetime interest rate caps, but they generally are not subject to
limitations on monthly or other periodic changes in interest rates or monthly
payments.
SPECIAL CHARACTERISTICS OF MORTGAGE- AND ASSET-BACKED SECURITIES. As set
forth in the Prospectus, PACE Government Securities Fixed Income Investments,
PACE Intermediate Fixed Income Investments and PACE Strategic Fixed Income
Investments each are authorized to invest in mortgage- and asset-backed
securities. The yield characteristics of mortgage- and asset-backed securities
differ from those of traditional debt securities. Among the major differences
are that interest and principal payments are made more frequently, usually
monthly, and that principal may be prepaid at any time because the underlying
mortgage loans or other obligations generally may be prepaid at any time.
Prepayments on a pool of mortgage loans are influenced by a variety of
economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. Generally, however,
prepayments on fixed-rate mortgage loans will increase during a period of
falling interest rates and decrease during a period of rising interest rates.
Similar factors apply to prepayments on asset-backed securities, but the
receivables underlying asset-backed securities generally are of a shorter
maturity and thus are less likely to experience substantial prepayments. Such
securities, however, often provide that for a specified time period the issuers
will replace receivables in the pool that are repaid with comparable
obligations. If the issuer is unable to do so, repayment of principal on the
asset-backed securities may commence at an earlier date. Mortgage- and asset-
backed securities may decrease in value as a result of increases in interest
rates and may benefit less than other fixed-income securities from declining
interest rates because of the risk of prepayment.
ARMs also may be subject to a greater rate of prepayments in a declining
interest rate environment. For example, during a period of declining interest
rates, prepayments on ARMs could increase because the availability of fixed
mortgage loans at competitive interest rates may encourage mortgagors to "lock-
in" at a lower interest rate. Conversely, during a period of rising interest
rates, prepayments on ARMs might decrease. The rate of prepayments with respect
to ARMs has fluctuated in recent years.
The rate of interest on mortgage-backed securities is lower than the interest
rates paid on the mortgages included in the underlying pool due to the annual
fees paid to the servicer of the mortgage pool for passing through monthly
payments to certificateholders and to any guarantor, and due to any yield
retained by the issuer. Actual yield to the holder may vary from the coupon
rate, even if adjustable, if the mortgage-backed securities are purchased or
traded in the secondary market at a premium or discount. In addition, there is
normally some delay between the time the
4
<PAGE>
issuer receives mortgage payments from the servicer and the time the issuer
makes the payments on the mortgage-backed securities, and this delay reduces
the effective yield to the holder of such securities.
Yields on pass-through securities are typically quoted by investment dealers
and vendors based on the maturity of the underlying instruments and the
associated average life assumption. The average life of pass-through pools
varies with the maturities of the underlying mortgage loans. A pool's term may
be shortened by unscheduled or early payments of principal on the underlying
mortgages. Because prepayment rates of individual pools vary widely, it is not
possible to predict accurately the average life of a particular pool. In the
past, a common industry practice has been to assume that prepayments on pools
of fixed rate 30-year mortgages would result in a 12-year average life for the
pool. At present, mortgage pools, particularly those with loans with other
maturities or different characteristics, are priced on an assumption of average
life determined for each pool. In periods of declining interest rates, the rate
of prepayment tends to increase, thereby shortening the actual average life of
a pool of mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease thereby lengthening the actual average
life of the pool. However, these effects may not be present, or may differ in
degree, if the mortgage loans in the pools have adjustable interest rates or
other special payment terms, such as a prepayment charge. Actual prepayment
experience may cause the yield of mortgage-backed securities to differ from the
assumed average life yield. Reinvestment of prepayments may occur at lower
interest rates than the original investment, thus adversely affecting the yield
of the Portfolios.
REPURCHASE AGREEMENTS. Repurchase agreements are transactions in which a
Portfolio purchases securities from a bank or recognized securities dealer and
simultaneously commits to resell the securities to the bank or dealer at an
agreed-upon date and price reflecting a market rate of interest unrelated to
the coupon rate or maturity of the purchased securities. A Portfolio maintains
custody of the underlying securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase price on the date agreed
to is, in effect, secured by such securities. If the value of such securities
is less than the repurchase price, plus any agreed-upon additional amount, the
other party to the agreement must provide additional collateral so that at all
times the collateral is at least equal to the repurchase price, plus any
agreed- upon additional amount. The difference between the total amount to be
received upon repurchase of the securities and the price that was paid by a
Portfolio upon their acquisition is accrued as interest and included in the
Portfolio's net investment income.
Repurchase agreements carry certain risks not associated with direct
investments in securities, including possible declines in the market value of
the underlying securities and delays and costs to a Portfolio if the other
party to a repurchase agreement becomes bankrupt. Each Portfolio intends to
enter into repurchase agreements only with banks and dealers in transactions
believed by its Adviser (or Mitchell Hutchins in the case of PACE Money Market
Investments) to present minimal credit risks in accordance with guidelines
established by the Trust's board of trustees. The Adviser will review and
monitor the creditworthiness of those institutions under the board's general
supervision.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements with banks up to an aggregate value of not more than 5%
of its total assets. These agreements involve the sale of securities held by a
Portfolio subject to the Portfolio's agreement to repurchase the securities at
an agreed-upon date and price reflecting a market rate of interest.
5
<PAGE>
These agreements are considered to be borrowings and may be entered into only
for extraordinary or emergency purposes or arbitrage transactions. While a
reverse repurchase agreement is outstanding, a Portfolio will maintain with its
custodian, in a segregated account, cash, U.S. government securities or other
liquid, high-grade debt obligations, marked to market daily, in an amount at
least equal to the Portfolio's obligations under the reverse repurchase
agreement.
ILLIQUID SECURITIES. PACE Global Fixed Income Investments, PACE Small/Medium
Company Value Equity Investments, PACE Small/Medium Company Growth Equity
Investments, PACE International Equity Investments and PACE International
Emerging Markets Equity Investments may each invest up to 15% of its net assets
in illiquid securities. PACE Money Market Investments, PACE Government
Securities Fixed Income Investments, PACE Intermediate Fixed Income
Investments, PACE Strategic Fixed Income Investments, PACE Municipal Fixed
Income Investments, PACE Large Company Value Equity Investments and PACE Large
Company Growth Equity Investments may each invest up to 10% of its net assets
in illiquid securities. The term "illiquid securities" for this purpose means
securities that cannot be disposed of within seven days in the ordinary course
of business at approximately the amount at which a Portfolio has valued the
securities and includes, among other things, purchased over-the-counter ("OTC")
options, repurchase agreements maturing in more than seven days, non-marketable
or interest-bearing time deposits and restricted securities other than those
the Adviser has determined are liquid pursuant to guidelines established by the
Trust's board of trustees. Interest-only ("IO") and principal-only ("PO")
mortgage-backed securities are considered illiquid except that the Adviser may
determine that IO and PO classes of fixed-rate mortgage-backed securities
issued by the U.S. government or one of its agencies or instrumentalities are
liquid pursuant to guidelines established by the Trust's board of trustees. The
assets used as cover for OTC options written by a Portfolio will be considered
illiquid unless the OTC options are sold to qualified dealers who agree that
the Portfolio may repurchase any OTC option it writes at a maximum price to be
calculated by a formula set forth in the option agreement. The cover for an OTC
option written subject to this procedure would be considered illiquid only to
the extent that the maximum repurchase price under the formula exceeds the
intrinsic value of the option. Illiquid restricted securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933
("1933 Act"). Where registration is required, a Portfolio may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Portfolio may
be permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Portfolio
might obtain a less favorable price than prevailed when it decided to sell.
Commercial paper issues in which PACE Money Market Investments may invest
include securities issued by major corporations without registration under the
1933 Act in reliance on the exemption from such registration afforded by
Section 3(a)(3) thereof and commercial paper issued in reliance on the so-
called "private placement" exemption from registration which is afforded by
Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the federal securities laws in that resale
must similarly be made in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors through or with the assistance of
investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Not all restricted securities are illiquid. In recent years a large
institutional market has developed for certain securities that are not
registered under the 1933 Act, including private
6
<PAGE>
placements, repurchase agreements, commercial paper, foreign securities and
corporate bonds and notes. These instruments are often restricted securities
because the securities are sold in transactions not requiring registration.
Institutional investors generally will not seek to sell these instruments to
the general public, but instead will often depend either on an efficient
institutional market in which such unregistered securities can be readily
resold or on an issuer's ability to honor a demand for repayment. Therefore,
the fact that there are contractual or legal restrictions on resale to the
general public or certain institutions is not dispositive of the liquidity of
such investments.
Rule 144A under the 1933 Act established a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for restricted securities
that might develop as a result of Rule 144A could provide both readily
ascertainable values for restricted securities and the ability to liquidate an
investment to satisfy share redemption orders. Such markets might include
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the National Association of Securities Dealers, Inc. ("NASD"). An
insufficient number of qualified buyers interested in purchasing Rule 144A-
eligible restricted securities held by a Portfolio, however, could affect
adversely the marketability of such portfolio and a Portfolio might be unable
to dispose of such securities promptly or at favorable prices.
The board of trustees has delegated the function of making day-to-day
determinations of liquidity to the appropriate Adviser or Mitchell Hutchins,
pursuant to guidelines approved by the board. The Adviser or Mitchell Hutchins,
as applicable, takes into account a number of factors in reaching liquidity
decisions, including (1) the frequency of trades for the security, (2) the
number of dealers that make quotes for the security, (3) the number of dealers
that have undertaken to make a market in the security, (4) the number of other
potential purchasers and (5) the nature of the security and how trading is
effected (e.g., the time needed to sell the security, how offers are solicited
and the mechanics of transfer). Each Portfolio's Adviser or Mitchell Hutchins,
as applicable, will monitor the liquidity of restricted securities in each
Portfolio's portfolio and report periodically on such decisions to the board of
trustees.
In making determinations as to the liquidity of municipal lease obligations
purchased by PACE Municipal Fixed Income Investments, the Adviser distinguishes
between direct investments in municipal lease obligations (or participations
therein) and investments in securities that may be supported by municipal lease
obligations or certificates of participation therein. Since these municipal
lease obligation-backed securities are based on a well-established means of
securitization, the Adviser does not believe that investing in such securities
presents the same liquidity issues as direct investments in municipal lease
obligations.
SPECIAL CHARACTERISTICS OF FOREIGN AND EMERGING MARKET SECURITIES
EMERGING MARKET SECURITIES. Many of the foreign and emerging market
securities held by PACE Strategic Fixed Income Fund, PACE Global Fixed Income
Investments, PACE International Equity Investments and PACE International
Emerging Markets Equity Investments will not be registered with the Securities
and Exchange Commission ("SEC"), nor will the issuers thereof be subject to SEC
reporting requirements. Accordingly, there may be less publicly available
information concerning foreign issuers of securities held by these Portfolios
than is available
7
<PAGE>
concerning U.S. companies. Disclosure and regulatory standards in many respects
are less stringent in emerging market countries than in the U.S. and other
major markets. There also may be a lower level of monitoring and regulation of
emerging markets and the activities of investors in such markets, and
enforcement of existing regulations may be extremely limited. Foreign
companies, and in particular, companies in smaller and emerging capital markets
are not generally subject to uniform accounting, auditing and financial
reporting standards or to other regulatory requirements comparable to those
applicable to U.S. companies. Each Portfolio's net investment income and
capital gains from its foreign investment activities may be subject to non-U.S.
withholding taxes.
The costs attributable to foreign investing that these three Portfolios must
bear frequently are higher than those attributable to domestic investing; this
is particularly true with respect to emerging capital markets. For example, the
cost of maintaining custody of foreign securities exceeds custodian costs for
domestic securities, and transaction and settlement costs of foreign investing
also frequently are higher than those attributable to domestic investing. Costs
associated with the exchange of currencies also make foreign investing more
expensive than domestic investing. Investment income on certain foreign
securities in which the Portfolios may invest may be subject to foreign
withholding or other government taxes that could reduce the return of these
securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign tax to which the
Portfolios would be subject.
Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have failed to keep
pace with the volume of securities transactions, making it difficult to conduct
such transactions. Delays in settlement could result in temporary periods when
assets of the Portfolio are uninvested and no return is earned thereon. The
inability of the Portfolio to make intended security purchases due to
settlement problems could cause the Portfolio to miss attractive investment
opportunities. Inability to dispose of a portfolio security due to settlement
problems could result either in losses to the Portfolio due to subsequent
declines in the value of such portfolio security or, if the Portfolio has
entered into a contract to sell the security, could result in possible
liability to the purchaser.
SOVEREIGN DEBT. Investment by PACE Global Fixed Income Investments, PACE
International Equity Investments, PACE International Emerging Markets Equity
Investments and PACE Strategic Fixed Income Investments in debt securities
issued by foreign governments and their political subdivisions or agencies
("Sovereign Debt") involves special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable
or unwilling to repay principal and/or interest when due in accordance with the
terms of such debt, and the Portfolio may have limited legal recourse in the
event of default.
Sovereign Debt differs from debt obligations issued by private entities in
that, generally, remedies for defaults must be pursued in the courts of the
defaulting party. Legal recourse is therefore somewhat diminished. Political
conditions, especially a sovereign entity's willingness to meet the terms of
its debt obligations, are of considerable significance. Also, there can be no
assurance that the holders of commercial bank debt issued by the same sovereign
entity may not contest payments to the holders of Sovereign Debt in the event
of default under commercial bank loan agreements.
A sovereign debtor's willingness or ability to repay principal and interest
due in a timely manner may be affected by, among other factors, its cash flow
situation, the extent of its foreign
8
<PAGE>
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a whole,
the sovereign debtor's policy toward principal international lenders and the
political constraints to which a sovereign debtor may be subject. Increased
protectionism on the part of a country's trading partners, or political changes
in those countries, could also adversely affect its exports. These events could
diminish a country's trade account surplus, if any, or the credit standing of a
particular local government or agency. Another factor bearing on the ability of
a country to repay Sovereign Debt is the level of the country's international
reserves. Fluctuations in the level of these reserves can affect the amount of
foreign exchange readily available for external debt payments and, thus, could
have a bearing on the capacity of the country to make payments on its Sovereign
Debt.
To the extent that a country has a current account deficit (generally when
exports of merchandise and services are less than the country's imports of
merchandise and services plus net transfers (e.g., gifts of currency and goods)
to foreigners), it will need to depend on loans from foreign governments,
multilateral organizations or private commercial banks, aid payments from
foreign governments and inflows of foreign investment. The access of a country
to these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.
With respect to Sovereign Debt of emerging market issuers, investors should
be aware that certain emerging market countries are among the largest debtors
to commercial banks and foreign governments. At times certain emerging market
countries have declared moratoria on the payment of principal and interest on
external debt; such moratoria are currently in effect in certain Latin American
countries.
Certain emerging market countries have experienced difficulty in servicing
their Sovereign Debt on a timely basis which led to defaults on certain
obligations and the restructuring of certain indebtedness. Restructuring
arrangements have included, among other things, reducing and rescheduling
interest and principal payments by negotiating new or amended credit agreements
or converting outstanding principal and unpaid interest to Brady Bonds
(discussed below), and obtaining new credit to finance interest payments.
Holders of Sovereign Debt, including PACE Strategic Fixed Income Investments
and PACE Global Fixed Income Investments, may be requested to participate in
the rescheduling of such debt and to extend further loans to sovereign debtors.
The interests of holders of Sovereign Debt could be adversely affected in the
course of restructuring arrangements or by certain other factors referred to
below. Furthermore, some of the participants in the secondary market for
Sovereign Debt may also be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to
other market participants. Obligations arising from past restructuring
agreements may affect the economic performance and political and social
stability of certain issuers of Sovereign Debt. There are no bankruptcy
proceedings by which Sovereign Debt on which a sovereign has defaulted may be
collected in whole or in part.
Foreign investment in certain Sovereign Debt is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
foreign investment in such Sovereign Debt and increase the costs and expenses
of the Portfolio. Certain countries in which the Portfolio will invest require
governmental approval prior to investments by foreign persons, limit the amount
9
<PAGE>
of investment by foreign persons in a particular issuer, limit the investment
by foreign persons only to a specific class of securities of an issuer that may
have less advantageous rights than the classes available for purchase by
domiciliaries of the countries or impose additional taxes on foreign investors.
Certain issuers may require governmental approval for the repatriation of
investment income, capital or the proceeds of sales of securities by foreign
investors. In addition, if a deterioration occurs in a country's balance of
payments, the country could impose temporary restrictions on foreign capital
remittances. The Portfolio could be adversely affected by delays in, or a
refusal to grant, any required governmental approval for repatriation of
capital, as well as by the application to the Portfolio of any restrictions on
investment. Investing in local markets may require the Portfolio to adopt
special procedures, seek local government approvals or take other actions, each
of which may involve additional costs to the Portfolio.
BRADY BONDS. PACE Global Fixed Income Investments, PACE International Equity
Investments and PACE International Emerging Markets Equity Investments may
invest in Brady Bonds and other Sovereign Debt of countries that have
restructured or are in the process of restructuring Sovereign Debt pursuant to
the Brady Plan, an initiative announced by former U.S. Treasury Secretary
Nicholas F. Brady in 1989 as a mechanism for debtor nations to restructure
their outstanding external commercial bank indebtedness. In restructuring its
external debt under the Brady Plan framework, a debtor nation negotiates with
its existing bank lenders as well as multilateral institutions such as the
International Monetary Fund ("IMF"). The Brady Plan framework, as it has
developed, contemplates the exchange of commercial bank debt for newly issued
Brady Bonds. Brady Bonds may also be issued in respect of new money being
advanced by existing lenders in connection with the debt restructuring. The
International Bank for Reconstruction and Development (more commonly known as
the "World Bank") and the IMF support the restructuring by providing funds
pursuant to loan agreements or other arrangements which enable the debtor
nation to collateralize the new Brady Bonds or to repurchase outstanding bank
debt at a discount.
Brady Plan debt restructurings totalling more than $80 billion have been
implemented to date in Mexico, Costa Rica, Venezuela, Uruguay, Nigeria,
Argentina and the Philippines and, in addition, Brazil has announced intentions
to issue Brady Bonds. There can be no assurance that the circumstances
regarding the issuance of Brady Bonds by these countries will not change.
Investors should recognize that Brady Bonds have been issued only recently, and
accordingly do not have a long payment history. Agreements implemented under
the Brady Plan to date are designed to achieve debt and debt-service reduction
through specific options negotiated by a debtor nation with its creditors. As a
result, the financial packages offered by each country differ. The types of
options have included the exchange of outstanding commercial bank debt for
bonds issued at 100% of face value of such debt, which carry a below-market
stated rate of interest (generally known as par bonds), bonds issued at a
discount from the face value of such debt (generally known as discount bonds),
bonds bearing an interest rate which increases over time and bonds issued in
exchange for the advancement of new money by existing lenders. Regardless of
the stated face amount and stated interest rate of the various types of Brady
Bonds, the Portfolio will purchase Brady Bonds in secondary markets, as
described below, in which the price and yield to the investor reflect market
conditions at the time of purchase.
Certain Brady Bonds have been collateralized as to principal due to maturity
by U.S. Treasury zero coupon bonds with maturities equal to the final maturity
of such Brady Bonds. Collateral purchases are financed by the IMF, the World
Bank and the debtor nations' reserves. In the event
10
<PAGE>
of a default with respect to collateralized Brady Bonds as a result of which
the payment obligations of the issuer are accelerated, the U.S. Treasury zero
coupon obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, interest payments on certain types of Brady Bonds
may be collateralized by cash or high grade securities in amounts that
typically represent between 12 and 18 months of interest accruals on these
instruments with the balance of the interest accruals being uncollateralized.
Brady Bonds are often viewed as having several valuation components: (1) the
collateralized repayment of principal, if any, at final maturity, (2) the
collateralized interest payments, if any, (3) the uncollateralized interest
payments and (4) any collateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative. The Portfolios may purchase Brady Bonds with no or limited
collateralization, and will be relying for payment of interest and (except in
the case of principal collateralized Brady Bonds) repayment of principal
primarily on the willingness and ability of the foreign government to make
payment in accordance with the terms of the Brady Bonds. Brady Bonds issued to
date are purchased and sold in secondary markets through U.S. securities
dealers and other financial institutions and are generally maintained through
European transnational securities depositories.
STRUCTURED FOREIGN INVESTMENTS. PACE Global Fixed Income Investments, PACE
International Equity Investments and PACE International Emerging Markets Equity
Investments may invest a portion of its assets in interests in U.S. and foreign
entities organized and operated solely for the purpose of securitizing or
restructuring the investment characteristics of foreign securities. This type
of securitization or restructuring involves the deposit with or purchase by a
U.S. or foreign entity, such as a corporation or trust, or specified
instruments (such as commercial bank loans or Brady Bonds) and the issuance by
the entity of one or more classes of securities ("Structured Foreign
Investments") backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued Structured Foreign Investments to create securities with
different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Foreign Investments is dependent on the extent of
the cash flow on the underlying instruments.
The Structured Foreign Investments of the type in which these Portfolios
typically will invest will involve no credit enhancement. Accordingly, their
credit risk generally will be equivalent to that of the underlying instruments.
The Portfolios are permitted, however, to invest in classes of Structured
Foreign Investments that are subordinated to the right of payment of another
class. Subordinated Structured Foreign Investments typically have higher yields
and present greater risks than unsubordinated Structured Foreign Investments.
Structured Foreign Investments are typically sold in private placement
transactions, and there currently is no active trading market for Structured
Foreign Investments.
FOREIGN CURRENCY TRANSACTIONS. Although PACE Global Fixed Income Investments,
PACE International Equity Investments, PACE International Emerging Markets
Equity Investments and
11
<PAGE>
PACE Strategic Fixed Income Investments value their assets daily in U.S.
dollars, they do not intend to convert their holdings of foreign currencies to
U.S. dollars on a daily basis. The Portfolio's foreign currencies may be held
as "foreign currency call accounts" at foreign branches of foreign or domestic
banks. These accounts bear interest at negotiated rates and are payable upon
relatively short demand periods. If a bank became insolvent, a Portfolio could
suffer a loss of some or all of the amounts deposited. Each of these Portfolios
may convert foreign currency to U.S. dollars from time to time. Although
foreign exchange dealers generally do not charge a stated commission or fee for
conversion, the prices posted generally include a "spread," which is the
difference between the prices at which the dealers are buying and selling
foreign currencies.
CONVERTIBLE SECURITIES. As described in the Prospectus, PACE Strategic Fixed
Income Investments, PACE Large Company Value Equity Investments, PACE Large
Company Growth Equity Investments, PACE Small/Medium Company Value Equity
Investments, PACE Small/Medium Company Growth Equity Investments, PACE
International Equity Investments and PACE International Emerging Markets Equity
Investments may invest in convertible securities. Before conversion,
convertible securities have characteristics similar to non-convertible debt
securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers. Convertible securities rank senior to common stock in a corporation's
capital structure but are usually subordinated to comparable non-convertible
securities. While no securities investment is without some risk, investments in
convertible securities generally entail less risk than the issuer's common
stock, although the extent to which such risk is reduced depends in large
measure upon the degree to which the convertible security sells above its value
as a fixed income security.
The value of a convertible security is a function of its "investment value"
(determined by its yield comparison with the yields of other securities of
comparable maturity and quality that do not have a conversion privilege) and
its "conversion value" (the security's worth, at market value, if converted
into the underlying common stock). The investment value of a convertible
security is influenced by changes in interest rates, with investment value
declining as interest rates increase and increasing as interest rates decline.
The credit standing of the issuer and other factors also may have an effect on
the convertible security's investment value. The conversion value of a
convertible security is determined by the market price of the underlying common
stock. If the conversion value is low relative to the investment value, the
price of the convertible security is governed principally by its investment
value and generally the conversion decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common
stock approaches or exceeds the conversion price, the price of the convertible
security will be increasingly influenced by its conversion value. In addition,
a convertible security generally will sell at a premium over its conversion
value determined by the extent to which investors place value on the right to
acquire the underlying common stock while holding a fixed income security.
No Portfolio has a current intention of converting any convertible securities
it may own into equity or holding them as equity upon conversion, although it
may do so for temporary purposes. A convertible security may be subject to
redemption at the option of the issuer at a price established in the
convertible security's governing instrument. If a convertible security held by
a Portfolio is called for redemption, the Portfolio will be required to permit
the issuer to redeem the security, convert it into the underlying common stock
or sell it to a third party.
INVERSE FLOATERS. Inverse Floaters are instruments whose interest rates bear
an inverse relationship to the interest rate on another security or the value
of an index. Changes in the interest rate on the other security or index
inversely affect the residual interest rate paid on the inverse
12
<PAGE>
floater, with the result that the inverse floater's price will be considerably
more volatile than that of a fixed-rate bond.
LOAN PARTICIPATION AND ASSIGNMENTS. Each Portfolio may invest up to 10% of
its total assets in secured or unsecured variable or floating rate loans
("Loans") arranged through private negotiations between a borrowing corporation
and one or more banks ("Lenders"). A Portfolio's investments in Loans will be
primarily in the form of participations ("Participations") in Loans, although a
Portfolio may acquire assignments ("Assignments") of portions of Loans from
third parties. Participations typically will result in a Portfolio receiving
payments of principal, interest and any fees to which it is entitled from the
Lender selling the Participations and relying upon the Lender to collect those
payments from the borrower. In connection with purchasing Participations, a
Portfolio generally has no direct right to enforce compliance by the borrower
with the terms of the loan agreement relating to the Loan, and the Portfolio
may not directly benefit from any collateral supporting the Loan in which it
has purchased the Participation. As a result, a Portfolio may assume the credit
risk of both the borrower and the Lender that is selling the Participation. In
the event of the insolvency of the Lender selling a Participation, a Portfolio
may be treated as a general creditor of the Lender and may not benefit from any
set-off between the Lender and the borrower or receive the full benefit of any
collateral. A Portfolio will acquire Participations only if both the borrower
and the Lender interpositioned between the Portfolio and the borrower meet the
Portfolio's credit standards.
When the Portfolio purchases Assignments from Lenders, it acquires direct
rights against the borrower on the Loan. Under an Assignment, a Portfolio
generally will be able to collect payments and enforce remedies directly from
or against the borrower. Conversely, however, a Portfolio may not have the
benefit of the services of a lead or agent bank to administer the loan on the
Portfolio's behalf.
Assignments and Participations are generally not registered under the 1933
Act and thus are usually subject to the Portfolios' limitations on investment
in illiquid securities. Because there is no liquid market for such securities,
the Portfolios anticipate that such securities could be sold only to a limited
number of institutional investors. The lack of a liquid secondary market will
have an adverse impact on the value of such securities and on the Portfolio's
ability to dispose of particular Assignments or Participations when necessary
to meet the Portfolio's liquidity needs or in response to a specific economic
event, such as a deterioration in the creditworthiness of the borrower. Under
normal circumstances, the bank issuing the Participation will be considered the
issuer for purposes of concentration and diversification.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. A security purchased on a when-
issued or delayed delivery basis is recorded as an asset on the commitment date
and is subject to changes in market value, generally based upon changes in the
level of interest rates. Thus, fluctuation in the value of the security from
the time of the commitment date will affect the Portfolio's net asset value.
When the Portfolio commits to purchase securities on a when-issued or delayed
delivery basis, its custodian will set aside in a segregated account cash, U.S.
government securities, or other liquid high-grade debt securities with a market
value equal to the amount of the commitment. If necessary, additional assets
will be placed in the account daily so that the value of the account will equal
or exceed the amount of the Portfolio's purchase commitment. The Portfolio
purchases when-issued securities only with the intention of taking delivery,
but may sell the right to acquire the security prior to delivery if the Adviser
or Mitchell Hutchins, as the case may be, deems it advantageous to do so, which
may result in capital gain or loss to a Portfolio.
13
<PAGE>
LEVERAGE
Each Portfolio may borrow up to 33 1/3% of its total assets and may borrow in
excess of its 33 1/3% limitation for extraordinary or emergency purposes, but
not in excess of an additional 5% of its total assets. Borrowing constitutes
leverage, a speculative technique. No Portfolio currently expects to leverage,
other than through the techniques described above and in the Prospectus during
the first year of operations although each may do so. A Portfolio will only use
leverage when its Adviser believes that such leverage will benefit the
Portfolio after taking leverage risks into consideration.
The net asset value of a Portfolio and its yield may be more volatile due to
the Portfolio's use of leverage. Leverage also creates interest expenses for a
Portfolio, which will reduce its net income. To the extent the income derived
from securities purchased with funds obtained through leverage exceeds the
interest and other expenses that a Portfolio will have to pay in connection
with such leverage, the Portfolio's net income will be greater than if leverage
were not used. Conversely, if the income from the assets obtained through
leverage is not sufficient to cover the cost of leverage, the net income of a
Portfolio will be less than if leverage were not used, and therefore the amount
available for distribution to stockholders will be reduced.
TYPES OF MUNICIPAL SECURITIES
The types of municipal securities identified in the Prospectus as eligible
for purchase by PACE Municipal Fixed Income Investments may include obligations
of issuers whose revenues are primarily derived from mortgage loans on housing
projects for moderate to low income families. The Portfolio also may purchase
mortgage subsidy bonds that are normally issued by special purpose public
authorities. In some cases the repayment of such bonds depends upon annual
legislative appropriations; in other cases repayment is a legal obligation of
the issuer and, if the issuer is unable to meet its obligations, repayment
becomes a moral commitment of a related government unit (subject, however, to
such appropriations).
STAND-BY COMMITMENTS. The Portfolio may acquire stand-by commitments pursuant
to which a bank or other municipal bond dealer agrees to purchase securities
that are held in the Portfolio's portfolio or that are being purchased by the
Portfolio, at a price equal to (1) the acquisition cost (excluding any accrued
interest paid on acquisition), less any amortized market premium or plus any
accrued market or original issue discount, plus (2) all interest accrued on the
securities since the last interest payment date or the date the securities were
purchased by the Portfolio, whichever is later. Although the Portfolio does not
currently intend to acquire stand-by commitments with respect to municipal
securities held in their portfolios, the Portfolio may acquire such commitments
under unusual market conditions to facilitate portfolio liquidity.
The Portfolio will enter into stand-by commitments only with those banks or
other dealers that, in the opinion of the Portfolio's Adviser, present minimal
credit risk. The Portfolio's right to exercise stand-by commitments would be
unconditional and unqualified. A stand-by commitment would not be transferable
by the Portfolio, although it could sell the underlying securities to a third
party at any time. The Portfolio may pay for stand-by commitments either
separately in cash or by paying a higher price for the securities that are
acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The acquisition of a stand-by
commitment would not ordinarily affect the valuation or maturity of the
underlying municipal securities. Stand-by commitments acquired by the Portfolio
would be valued at zero in determining net asset value. Whether the Portfolio
paid directly or indirectly for a stand-by commitment, its cost would be
treated as unrealized depreciation and would be amortized over the period the
commitment is held by the Portfolio.
14
<PAGE>
PUT BONDS. The Portfolio may invest in put bonds that have a fixed rate of
interest and a final maturity beyond the date on which the put may be
exercised. If the put is a "one time only" put, the Portfolio ordinarily will
either sell the bond or put the bond, depending upon the more favorable price.
If the bond has a series of puts after the first put, the bond will be held as
long as, in the judgment of the Portfolio's Adviser, it is in the best interest
of the Portfolio to do so. There is no assurance that the issuer of a put bond
acquired by the Portfolio will be able to repurchase the bond upon the exercise
date, if the Portfolio chooses to exercise its right to put the bond back to
the issuer.
MUNICIPAL LEASE OBLIGATIONS. Although municipal lease obligations do not
constitute general obligations of the municipality for which its taxing power
is pledged, they ordinarily are backed by its covenant to budget for,
appropriate, and make the payments due under the lease obligation. The leases
underlying certain municipal lease obligations, however, provide that lease
payments are subject to partial or full abatement if, because of material
damage or destruction of the leased property, there is substantial interference
with the lessee's use or occupancy of such property. This "abatement risk" may
be reduced by the existence of insurance covering the leased property, the
maintenance by the lessee of reverse funds or the provision of credit
enhancements such as letters of credit.
Certain municipal lease obligations contain "non-appropriation" clauses which
provide that the municipality has no obligation to make lease or installment
purchase payments in future years unless money is appropriated for such purpose
on a yearly basis. In the case of a "non- appropriation" lease, a Portfolio's
ability to recover under the lease in the event of a non-appropriation or
default will be limited solely to the repossession of leased property without
recourse to the general credit of the lessee, and disposition of the property
in the event of foreclosure might prove difficult. The Portfolio does not
intend to invest a significant portion of its assets in such "non-
appropriation" municipal lease obligations. There is no limitation on the
Portfolio's ability to invest in other municipal lease obligations.
PARTICIPATION INTERESTS. The Portfolio also may invest in participation
interests in municipal bonds, including industrial development bonds ("IDBs"),
private activity bonds ("PABs") and floating and variable rate securities. A
participation interest gives the Portfolio an undivided interest in a municipal
bond owned by a bank. The Portfolio has the right to sell the instrument back
to the bank. Such right generally is backed by the bank's irrevocable letter of
credit or guarantee and permits the Portfolio to draw on the letter of credit
on demand, after specified notice, for all or any part of the principal amount
of the Portfolio's participation interest plus accrued interest. Generally, the
Portfolio intends to exercise the demand under the letters of credit or other
guarantees only (1) upon a default under the terms of the underlying bond, (2)
to maintain the Portfolio's portfolio in accordance with its investment
objective and policies, or (3) as needed to provide liquidity to the Portfolio
in order to meet redemption requests. The ability of a bank to fulfill its
obligations under a letter of credit or guarantee might be affected by possible
financial difficulties of its borrowers, adverse interest rate or economic
conditions, regulatory limitations, or other factors. The Portfolio's Adviser
will monitor the pricing, quality, and liquidity of the participation interests
held by the Portfolio, and the credit standing of banks issuing letters of
credit or guarantees supporting such participation interests, on the basis of
published financial information reports of NRSROs and bank analytical services.
FLOATING RATE AND VARIABLE RATE MUNICIPAL SECURITIES. As noted in the
Prospectus, the Portfolio may invest in floating rate and variable rate
municipal securities with or without demand features. A demand feature gives
the Portfolio the right to sell the securities back to a specified
15
<PAGE>
party, usually a remarketing agent, on a specified date. A demand feature is
often backed by a letter of credit or guarantee from a bank. As discussed
under "Participation Interests," to the extent that payment of an obligation
is backed by a bank's letter of credit or guarantee, such payment may be
subject to the bank's ability to satisfy that commitment. The interest rate on
floating rate or variable rate securities ordinarily is readjusted on the
basis of the prime rate of the bank that originated the financing or some
other index or published rate, such as the 90-day U.S. Treasury Bill rate.
Generally, these interest rate adjustments cause the market value of floating
rate and variable rate municipal securities to fluctuate less than the market
value of fixed rate obligations. Accordingly, as interest rates decrease or
increase, the potential for capital appreciation or capital depreciation is
less than for fixed rate obligations.
HEDGING AND RELATED STRATEGIES
As discussed in the Prospectus, each Portfolio (except PACE Money Market
Investments, PACE Municipal Fixed Income Investments, PACE Small/Medium
Company Value Equity Investments and PACE Large Company Growth Equity
Investments) may use a variety of financial instruments ("Instruments"), which
may include certain options, futures contracts (sometimes referred to as
"futures"), options on futures contracts, forward currency contracts and
interest rate protection transactions, to attempt to hedge the portfolio of
the Portfolio and to attempt to enhance the Portfolio's income or return. The
particular Instruments are described in Appendix A to the Prospectus.
Hedging strategies can be broadly categorized as "short hedges" and "long
hedges." A short hedge is a purchase or sale of an Instrument intended
partially or fully to offset potential declines in the value of one or more
investments held in a Portfolio's portfolio. Thus, in a short hedge a
Portfolio takes a position in an Instrument whose price is expected to move in
the opposite direction of the price of the investment being hedged. For
example, a Portfolio might purchase a put option on a security to hedge
against a potential decline in the value of that security. If the price of the
security declined below the exercise price of the put, the Portfolio could
exercise the put and thus limit its loss below the exercise price to the
premium paid plus transaction costs. In the alternative, because the value of
the put option can be expected to increase as the value of the underlying
security declines, the Portfolio might be able to close out the put option and
realize a gain to offset the decline in the value of the security.
Conversely, a long hedge is a purchase or sale of an Instrument intended
partially or fully to offset potential increases in the acquisition cost of
one or more investments that a Portfolio intends to acquire. Thus, in a long
hedge a Portfolio takes a position in an Instrument whose price is expected to
move in the same direction as the price of the prospective investment being
hedged. For example, a Portfolio might purchase a call option on a security it
intends to purchase in order to hedge against an increase in the cost of the
security. If the price of the security increased above the exercise price of
the call, the Portfolio could exercise the call and thus limit its acquisition
cost to the exercise price plus the premium paid and transaction costs.
Alternatively, the Portfolio might be able to offset the price increase by
closing out an appreciated call option and realizing a gain.
Instruments on securities generally are used to hedge against price
movements in one or more particular securities positions that a Portfolio owns
or intends to acquire. Instruments on indices of equity or debt securities, in
contrast, generally are used to hedge against price movements in broad
16
<PAGE>
equity or debt market sectors in which the Portfolio has invested or expects to
invest. Instruments on debt securities may be used to hedge either individual
securities or broad fixed income market sectors.
The use of Instruments is subject to applicable regulations of the SEC, the
several options and futures exchanges upon which they are traded, the Commodity
Futures Trading Commission ("CFTC") and various state regulatory authorities.
In addition, a Portfolio's ability to use Instruments will be limited by tax
considerations. See "Taxes."
In addition to the products, strategies and risks described below and in the
Prospectus, the Advisers expect to discover additional opportunities in
connection with options, futures contracts, forward currency contracts and
other techniques. These new opportunities may become available as an Adviser
develops new techniques, as regulatory authorities broaden the range of
permitted transactions and as new options, futures contracts, forward currency
contracts or other techniques are developed. An Adviser may utilize these
opportunities to the extent that they are consistent with the Portfolio's
investment objective and permitted by the Portfolio's investment limitations
and applicable regulatory authorities. The Prospectus or SAI will be
supplemented to the extent that new products or techniques involve materially
different risks than those described below or in the Prospectus.
SPECIAL RISKS OF THESE STRATEGIES. The use of these Instruments involves
special considerations and risks, as described below. Risks pertaining to
particular Instruments are described in the sections that follow.
(1) Successful use of most Instruments depends upon the Adviser's ability to
predict movements of the overall securities, currency and interest rate
markets, which require different skills than predicting changes in the prices
of individual securities. While each Adviser is experienced in the use of
Instruments, there can be no assurance that any particular strategy adopted
will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of an Instrument and price movements of the investments being
hedged. For example, if the value of an Instrument used in a short hedge
increased by less than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which Instruments are traded.
The effectiveness of hedges using Instruments on indices will depend on the
degree of correlation between price movements in the index and price movements
in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if a Portfolio entered in a
short hedge because the Adviser projected a decline in the price of a security
in the Portfolio's portfolio, and the price of that security increased instead,
the gain from that increase might be wholly or partially
17
<PAGE>
offset by a decline in the price of the Instrument. Moreover, if the price of
the Instrument declined by more than the increase in the price of the security,
the Portfolio could suffer a loss. In either such case, the Portfolio would
have been in a better position had it not hedged at all.
(4) As described below, a Portfolio might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in Instruments involving obligations to third parties (i.e.,
Instruments other than purchased options). If a Portfolio were unable to close
out its positions in such Instruments, it might be required to continue to
maintain such assets or accounts or make such payments until the position
expired or matured. These requirements might impair a Portfolio's ability to
sell a portfolio security or make an investment at a time when it would
otherwise be favorable to do so, or require that a Portfolio sell a portfolio
security at a disadvantageous time. A Portfolio's ability to close out a
position in an Instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("contra party")
to enter into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Portfolio.
COVER FOR THESE STRATEGIES. Transactions using Instruments, other than
purchased options, expose a Portfolio to an obligation to another party. A
Portfolio will not enter into any such transactions unless it owns either (1)
an offsetting (covered) position in securities, currencies or other options,
futures contracts or forward contracts or (2) cash, receivables and short-term
debt securities, with a value sufficient at all times to cover its potential
obligations to the extent not covered as provided in (1) above. Each Portfolio
will comply with SEC guidelines regarding cover for these Instruments and will,
if the guidelines so require, set aside cash, U.S. government securities or
other liquid, high-grade debt securities in a segregated account with its
custodian in the prescribed amount as determined daily on a mark-to-market
basis.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding Instrument is open, unless they are replaced with
other appropriate assets. As a result, the commitment of a large portion of a
Portfolio's assets to cover or segregated accounts could impede portfolio
management or the Portfolio's ability to meet redemption requests or other
current obligations.
OPTIONS. The Portfolios may purchase put and call options, and write (sell)
and purchase call options on debt and equity securities, foreign currencies and
indices of debt or equity securities. The purchase of call options serves as a
long hedge, and the purchase of put options serves as a short hedge. Writing
covered put or call options can enable a Portfolio to enhance income by reason
of the premiums paid by the purchasers of such options. However, if the market
price of the security underlying a put option declines to less than the
exercise price on the option, minus the premium received, the Portfolio would
expect to suffer a loss. Writing call options serves as a limited short hedge,
because declines in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
appreciates to a price higher than the exercise price of the call option, it
can be expected that the option will be exercised and the Portfolio will be
obligated to sell the security at less than its market value. If the call
option is an OTC option, the securities or other assets used as cover would be
considered illiquid to the extent described under "Investment Policies and
Restrictions--Illiquid Securities."
18
<PAGE>
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the historical price volatility of the underlying investment and
general market conditions. Options that expire unexercised have no value.
A Portfolio may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, a Portfolio may terminate
its obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, a Portfolio may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction. Closing transactions permit a Portfolio to realize
profits or limit losses on an option position prior to its exercise or
expiration.
The Portfolios may purchase or write both exchange-traded and OTC options.
Currently, many options on equity securities are exchange-traded. Exchange
markets for options on debt securities and foreign currencies exist, but these
instruments are primarily traded on the OTC market. Exchange-traded options in
the United States are issued by a clearing organization affiliated with the
exchange on which the option is listed that, in effect, guarantees completion
of every exchange-traded option transaction. In contrast, OTC options are
contracts between a Portfolio and its contra party (usually a securities dealer
or a bank) with no clearing organization guarantee. Thus, when a Portfolio
purchases or writes an OTC option, it relies on the party from whom it
purchased the option or to whom it has written the option to make or take
delivery of the underlying investment upon exercise of the option. In the case
of purchased options, failure by the contra party to do so would result in the
loss of any premium paid by the Portfolio as well as the loss of any expected
benefit of the transaction.
Generally, the OTC debt and foreign currency options used by the Portfolios
are European-style options. This means that the option is only exercisable
immediately prior to its expiration. This is in contrast to American-style
options, which are exercisable at any time prior to the expiration date of the
option.
A Portfolio's ability to establish and close out positions in exchange-traded
options depends on the existence of a liquid market. Each Portfolio intends to
purchase or write only those exchange-traded options for which there appears to
be a liquid secondary market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although a
Portfolio will enter into OTC options only with contra parties that are
expected to be capable of entering into closing transactions with the
Portfolio, there is no assurance that the Portfolio will in fact be able to
close out an OTC option position at a favorable price prior to expiration. In
the event of insolvency of the contra party, the Portfolio might be unable to
close out an OTC position at any time prior to its expiration.
If the Portfolio were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a call option
written by a Portfolio could cause material losses because the Portfolio would
be unable to sell the investment used as cover for the written option until the
option expires or is exercised.
19
<PAGE>
GUIDELINES FOR OPTIONS. Each Portfolio's use of options is governed by the
following guidelines, which can be changed by the Trust's board of trustees
without shareholder vote:
(1) A Portfolio may purchase a put or call option, including any straddles or
spreads, only if the value of its premium, when aggregated with the premiums on
all other options held by the Portfolio, does not exceed 5% of the Portfolio's
total assets.
(2) The aggregate value of securities underlying put options written by a
Portfolio, determined as of the date the put options are written, will not
exceed 50% of the Portfolio's net assets.
(3) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on futures
contracts) purchased by the Portfolio are held at any time will not exceed 20%
of the Portfolio's total net assets.
FUTURES. The purchase of futures or call options thereon can serve as long
hedge, and the sale of futures or the purchase of put options thereon can serve
as a short hedge. Writing call options on futures contracts can serve as a
limited short hedge, using a strategy similar to that used for writing call
options on securities or indices. Similarly, writing put options on futures
contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration of a
Portfolio's portfolio. If its Adviser wishes to shorten the average duration of
a Portfolio, the Portfolio may sell a futures contract or a call option
thereon, or purchase a put option on that futures contract. If its Adviser
wishes to lengthen the average duration of a Portfolio, the Portfolio may buy a
futures contract or a call option thereon, or sell a put option thereon.
PACE Global Fixed Income Investments may also write put options on foreign
currency futures contracts while at the same time purchasing call options on
the same futures contracts in order synthetically to create a long futures
contract position. Such options would have the same strike prices and
expiration dates. The Portfolio will engage in this strategy only when it is
more advantageous to the Portfolio than is purchasing the futures contract.
No price is paid upon entering into a future contract. Instead, at the
inception of a futures contract a Portfolio is required to deposit in a
segregated account with its custodian, in the name of the futures commission
merchant ("FCM") through whom the transaction was effected, "initial margin"
consisting of cash or U.S. government securities, in an amount generally equal
to 10% or less of the contract value. Margin must also be deposited when
writing an option on a futures contract, in accordance with applicable exchange
rules. Unlike margin in securities transactions, initial margin on futures
contracts does not represent a borrowing, but rather is in the nature of a
performance bond or good-faith deposit that is returned to the Portfolio at the
termination of the transaction if all contractual obligations have been
satisfied. Under certain circumstances, such as periods of high volatility, a
Portfolio may be required by an exchange to increase the level of its initial
margin payment, and initial margin requirements might be increased generally in
the future by regulatory action.
Subsequent "variation margin" payments are made to and from the FCM daily as
the value of the futures position varies, a process known as "marking to
market." Variation margin does not involve borrowing, but rather represents a
daily settlement of a Portfolio's obligations to or from a
20
<PAGE>
FCM. When a Portfolio purchases an option on a future, the premium paid plus
transaction costs is all that is at risk. In contrast, when a Portfolio
purchases or sells a futures contract or writes an option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Portfolio has insufficient cash to meet
daily variation margin requirements, it might need to sell securities at a time
when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, a futures contract or option
identical to the instrument purchased or sold. Positions in futures and options
on futures may be closed only on an exchange or board of trade that provides a
secondary market. Each Portfolio intends to enter into these transactions only
on exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time.
Under certain circumstances, futures exchanges may establish daily limits on
the amount that the price of a future or option can vary from the previous
day's settlement price; once that limit is reached, no trades may be made that
day at a price beyond the limit. Daily price limits do not limit potential
losses because prices could move to the daily limit for several consecutive
days with little or no trading, thereby preventing liquidation of unfavorable
positions.
If a Portfolio were unable to liquidate a futures or related options position
due to the absence of a liquid secondary market or the imposition of price
limits, it could incur substantial losses. The Portfolio would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options, the Portfolio would continue to be required to make
daily variation margin payments and might be required to maintain the position
being hedged by the future or option or to maintain cash or securities in a
segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts or related options might not
correlate perfectly with movements in the prices of the investments being
hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are
less onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets
involving arbitrage, "program trading" and other investment strategies might
result in temporary price distortions.
GUIDELINES FOR FUTURES AND RELATED OPTIONS. Each Portfolio's use of futures
and related options is governed by the following guidelines, which can be
changed by the Trust's board of trustees without shareholder vote:
(1) To the extent a Portfolio enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that are not for bona fide hedging purposes (as defined
by the CFTC), the aggregate initial margin and premiums required to establish
these on those positions (excluding the amount by which options are "in-the-
money") may not exceed 5% of the Portfolio's net assets.
21
<PAGE>
(2) The aggregate premiums paid on all options (including options on
securities, foreign currencies and stock or bond indices and options on futures
contracts) purchased by a Portfolio that are held at any time will not exceed
20% of the Portfolio's total net assets.
(3) The aggregate margin deposits on all futures contracts and options
thereon held at any time by a Portfolio will not exceed 5% of the Portfolio's
total assets.
FOREIGN CURRENCY HEDGING STRATEGIES--SPECIAL CONSIDERATIONS. PACE Strategic
Fixed Income Investments, PACE Global Fixed Income Investments, PACE
International Equity Investments and PACE International Emerging Markets Equity
Investments each may use options and futures on foreign currencies, as
described above, and forward currency forward contracts, as described below, to
hedge against movements in the values of the foreign currencies in which the
Portfolios' securities are denominated. Such currency hedges can protect
against price movements in a security that a Portfolio owns or intends to
acquire that are attributable to changes in the value of the currency in which
it is denominated. Such hedges do not, however, protect against price movements
in the securities that are attributable to other causes.
The Portfolios might seek to hedge against changes in the value of a
particular currency when no Instruments on that currency are available or such
Instruments are more expensive than certain other Instruments. In such cases, a
Portfolio may hedge against price movements in that currency by entering into
transactions using Instruments on another foreign currency or a basket of
currencies, the values of which the Adviser believes will have a positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the Instrument will not correlate perfectly with movements in
the price of the currency being hedged is magnified when this strategy is used.
The Portfolios may also use options and futures on foreign currencies,
options on currency futures and forward currency contracts for income and
return enhancement, for example, by shifting a Portfolio's exposure from one
foreign currency (or the U.S. dollar) to another foreign currency.
The value of Instruments on foreign currencies depends on the value of the
underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Instruments, the
Portfolios could be disadvantaged by having to deal in the odd lot market
(generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Instruments until they reopen.
22
<PAGE>
Settlement of transactions involving foreign currencies might be required to
take place within the country issuing the underlying currency. Thus, a
Portfolio might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS. PACE Global Fixed Income Investments, PACE
International Equity Investments, PACE International Emerging Markets Equity
Investments and PACE Strategic Fixed Income Investments may enter into forward
currency contracts to purchase or sell foreign currencies for a fixed amount of
U.S. dollars or another foreign currency. Such transactions may serve as long
hedges--for example, a Portfolio may purchase a forward currency contract to
lock in the U.S. dollar price of a security denominated in a foreign currency
that the Portfolio intends to acquire. Forward currency contracts may also
serve as short hedges--for example, a Portfolio may sell a forward currency
contract to lock in the U.S. dollar equivalent of the proceeds from the
anticipated sale of a security denominated in a foreign currency.
As noted above, each of these Portfolios may seek to hedge against changes in
the value of a particular currency by using forward contracts on another
foreign currency or a basket of currencies, the value of which its Adviser
believes will have a positive correlation to the values of the currency being
hedged. In addition, the Portfolios may use forward currency contracts to shift
exposure to foreign currency fluctuations from one country to another. For
example, if a Portfolio owns securities denominated in a foreign currency and
its Adviser believes that currency will decline relative to another currency,
it might enter into a forward contract to sell an appropriate amount of the
first foreign currency, with payment to be made in the second foreign currency.
Transactions that use two foreign currencies are sometimes referred to as
"cross hedging." Use of a different foreign currency magnifies the risk that
movements in the price of the Instrument will not correlate or will correlate
unfavorably with the foreign currency being hedged.
The cost to the Portfolios of engaging in forward currency contracts varies
with factors such as the currency involved, the length of the contract period
and the market conditions then prevailing. Because forward currency contracts
are entered into on a principal basis, no fees or commissions are involved.
When a Portfolio enters into a forward currency contract, it relies on the
contra party to make or take delivery of the underlying currency at the
maturity of the contract. Failure by the contra party to do so would result in
the loss of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures, by selling or purchasing, respectively, a
forward contract identical to the forward contract purchased or sold. Secondary
markets generally do not exist for forward currency contracts, with the result
that closing transactions generally can be made for forward currency contracts
only by negotiating directly with the contra party. Thus, there can be no
assurance that a Portfolio will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the contra party, the Portfolio might be unable to close out a
forward currency contract at any time prior to maturity. In either event, the
Portfolio would continue to be subject to market risk with respect to the
position, and would continue to be required to maintain a position in the
securities or currencies that are the subject of the hedge or to maintain cash
or securities in a segregated account.
23
<PAGE>
The precise matching of forward currency contract amounts and the value of
the securities involved generally will not be possible because the value of
such securities, measured in the foreign currency, will change after the
foreign currency contract has been established. Thus, a Portfolio might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by forward contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
INTEREST RATE PROTECTION TRANSACTIONS. PACE Government Securities Fixed
Income Investments and PACE Strategic Fixed Income Investments may enter into
interest rate protection transactions, including interest rate swaps and
interest rate caps, collars and floors. Interest rate swap transactions involve
an agreement between two parties to exchange payments that are based, for
example, on variable and fixed rates of interest and that are calculated on the
basis of a specified amount of principal (the "notional principal amount") for
a specified period of time. Interest rate cap and floor transactions involve an
agreement between two parties in which the first party agrees to make payments
to the contra party when a designated market interest rate goes above (in the
case of a cap) or below (in the case of a floor) a designated level on
predetermined dates or during a specified time period. An interest rate collar
combines elements of buying a cap and selling a floor.
These Portfolios may enter into interest rate protection transactions to
preserve a return or spread on a particular investment or portion of its
portfolio or to protect against any increase in the price of securities it
anticipates purchasing at a later date. These Portfolios may also use interest
rate protection transactions for income and return enhancement purposes.
Each of these Portfolios may enter into interest rate swaps, caps, collars
and floors on either an asset-based or liability-based basis, depending on
whether it is hedging its assets or its liabilities, and will usually enter
into interest rate swaps on a net basis, i.e., the two payment streams are
netted out, with the Portfolio receiving or paying, as the case may be, only
the net amount of the two payments. Mitchell Hutchins and each Portfolio's
Adviser believe such obligations do not constitute senior securities and,
accordingly, will not treat them as being subject to the Portfolio's borrowing
restrictions. The net amount of the excess, if any, of the Portfolio's
obligations over its entitlements with respect to each interest rate swap will
be accrued on a daily basis and an amount of cash, U.S. government securities
or other liquid high-grade debt obligations having an aggregate net asset value
at least equal to the accrued excess will be maintained in a segregated account
by a custodian that satisfies the requirements of the Investment Company Act of
1940 ("1940 Act"). A Portfolio also will establish and maintain such segregated
accounts with respect to its total obligations under any interest rate swaps
that are not entered into on a net basis and with respect to any interest rate
caps, collars and floors that are written by the Portfolio.
A Portfolio will enter into interest rate protection transactions only with
banks and recognized securities dealers believed by its Adviser to present
minimal credit risks in accordance with guidelines established by the Trust's
board of trustees. If there is a default by the other party to such a
transaction, the Portfolio will have to rely on its contractual remedies (which
may be limited by bankruptcy, insolvency or similar laws) pursuant to the
agreements related to the transaction.
SHORT SALES "AGAINST THE BOX". Each Portfolio may engage in short sales of
securities it owns or has the right to acquire at no added cost through
conversion or exchange of other securities it owns (short sales "against the
box") to defer realization of gains or losses for tax or other purposes.
24
<PAGE>
To make delivery to the purchaser in a short sale, the executing broker borrows
the securities being sold short on behalf of the Portfolio, and the Portfolio
is obligated to replace the securities borrowed at a date in the future. When a
Portfolio sells short, it will establish a margin account with the broker
effecting the short sale, and will deposit collateral with the broker. In
addition, the Portfolio will maintain with its custodian, in a segregated
account, the securities that could be used to cover the short sale. A Portfolio
will incur transaction costs, including interest expense, in connection with
opening, maintaining and closing short sales against the box. None of the
Portfolios currently intend to have obligations under short-sales that at any
time during the coming year exceed 5% of the Portfolio's net assets.
A Portfolio might make a short sale "against the box" in order to hedge
against market risks when Mitchell Hutchins or an Adviser believes that the
price of a security may decline, thereby causing a decline in the value of a
security owned by the Portfolio or a security convertible into or exchangeable
for a security owned by the Portfolio, or when Mitchell Hutchins or an Adviser
want to sell a security that the Portfolio owns at a current price, but also
wishes to defer recognition of gain or loss for federal income tax purposes. In
such case, any loss in the Portfolio's long position after the short sale
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which gains or losses in the long position are reduced will depend upon the
amount of the securities sold short relative to the amount of the securities
the Portfolio owns, either directly or indirectly, and in the case where the
Portfolio owns convertible securities, changes in the investment values or
conversion premiums of such securities.
INVESTMENT RESTRICTIONS
The Trust has adopted investment restrictions numbered 1 through 12 below as
fundamental policies of the Portfolios. Under the 1940 Act, a fundamental
policy may not be changed without the vote of a majority of the outstanding
voting securities of a Portfolio, which is defined in the 1940 Act as the
lesser of (1) 67% or more of the shares present at a Portfolio meeting, if the
holders of more than 50% of the outstanding shares of the Portfolio are present
or represented by proxy or (2) more than 50% of the outstanding shares of the
Portfolio. Investment restrictions 13 through 17 may be changed by a vote of a
majority of the board of trustees at any time.
Under the investment restrictions adopted by the Portfolios:
1. A Portfolio, other than PACE Intermediate Fixed Income Investments,
and PACE Global Fixed Income Investments, may not purchase securities
(other than U.S. government securities) of any issuer if, as a result of
the purchase, more than 5% of the value of the Portfolio's total assets
would be invested in such issuer, except that up to 25% of the value of the
Portfolio's total assets may be invested without regard to this 5%
limitation.
2. A Portfolio will not purchase more than 10% of the outstanding voting
securities of any one issuer, except that this limitation is not applicable
to the Portfolio's investments in U.S. government securities and up to 25%
of the Portfolio's assets may be invested without regard to these
limitations.
3. A Portfolio, other than PACE Municipal Fixed Income Investments, will
invest no more than 25% of the value of its total assets in securities of
issuers in any one industry, the term industry being deemed to include the
government of a particular country other than the United States. This
limitation is not applicable to a Portfolio's investments in U.S.
government securities.
25
<PAGE>
4. A Portfolio will not issue senior securities (including borrowing
money from banks and other entities and through reverse repurchase
agreements and mortgage dollar rolls) in excess of 33 1/3% of its total
assets (including the amount of senior securities issued, but reduced by
any liabilities and indebtedness not constituting senior securities),
except that a Portfolio may borrow up to an additional 5% of its total
assets (not including the amount borrowed) for extraordinary or emergency
purposes.
5. A Portfolio will not pledge, hypothecate, mortgage, or otherwise
encumber its assets, except to secure permitted borrowings or in connection
with its use of forward contracts, futures contracts, options, swaps, caps,
collars and floors.
6. A Portfolio will not lend any funds or other assets, except through
purchasing debt obligations, lending portfolio securities and entering into
repurchase agreements consistent with the Portfolio's investment objective
and policies.
7. A Portfolio will not purchase securities on margin, except that a
Portfolio may obtain any short-term credits necessary for the clearance of
purchases and sales of securities. For purposes of this restriction, the
deposit or payment of initial or variation margin in connection with
futures contracts or options on futures contracts will not be deemed to be
a purchase of securities on margin.
8. A Portfolio will not make short sales of securities or maintain a
short position, unless at all times when a short position is open it owns
an equal amount of the securities or securities convertible into or
exchangeable for, without payment of any further consideration, securities
of the same issue as, and equal in amount to, the securities sold short
("short sales against the box"), and unless not more than 10% of the
Portfolio's net assets (taken at market value) is held as collateral for
such sales at any one time.
9. A Portfolio will not purchase or sell real estate or real estate
limited partnership interests, except that it may purchase and sell
mortgage related securities and securities of companies that deal in real
estate or interests therein.
10. A Portfolio will not purchase or sell commodities or commodity
contracts (except currencies, forward currency contracts, futures contracts
and options and other similar contracts).
11. A Portfolio will not act as an underwriter of securities, except that
a Portfolio may acquire restricted securities under circumstances in which,
if the securities were sold, the Portfolio might be deemed to be an
underwriter for purposes of the 1933 Act.
12. A Portfolio will not invest in oil, gas or other mineral leases or
exploration or development programs.
13. A Portfolio will not make investments for the purpose of exercising
control of management.
14. A Portfolio will not purchase any securities if as a result (unless
the security is acquired pursuant to a plan of reorganization or an offer
of exchange) the Portfolio would own any securities of a registered open-
end investment company or more than 3% of the total outstanding voting
stock of any registered closed-end investment company or more than 5% of
the total value of the Portfolio's total assets would be invested in
securities of any one or more registered closed-end investment companies.
26
<PAGE>
15. A Portfolio will not purchase any security if as a result the
Portfolio would then have more than 5% of its total assets invested in
securities of companies (including predecessors) that have been in
continuous operation for fewer than three years.
16. A Portfolio will not purchase or retain securities of any company if,
to the knowledge of the Trust after reasonable inquiry, any of the Trust's
officers or trustees or any officer or director of Mitchell Hutchins or the
Adviser for that Portfolio individually owns more than 1/2 of 1% of the
outstanding securities of the company and together they own beneficially
more than 5% of the securities.
17. A Portfolio will not invest in excess of 5% of the value of its net
assets in warrants, valued at the lower of cost or market value. Included
within this amount, but not to exceed 2% of the value of a Portfolio's net
assets, may be warrants that are not listed on the New York or American
Stock Exchanges. Warrants acquired by a Portfolio in units or attached to
securities may be deemed to be without value.
18. A Portfolio may not purchase securities of other investment
companies, except to the extent permitted by the 1940 Act in the open
market at no more than customary brokerage commission rates. This
limitation does not apply to securities received or acquired as dividends,
through offers of exchange, or as a result of reorganization, consolidation
or merger.
19. A Portfolio will not purchase the securities of any issuer which,
together with its predecessors, has a record of less than three years of
continuous operation, or in securities which are restricted as to
disposition (including Rule 144A securities) if, as a result of such
purchase, more than 15% of the Portfolio's total assets would be invested
in such securities.
The Trust may make commitments more restrictive than the restrictions listed
above so as to permit the sale of shares of a Portfolio in certain states.
Should the Trust determine that a commitment is no longer in the best interests
of the Portfolio and its shareholders, the Trust will revoke the commitment by
terminating the sale of shares of the Portfolio in the state involved. If a
percentage restriction is adhered to at the time of an investment or
transaction, a later increase or decrease in percentage resulting from a change
in values of portfolio securities or amount of total assets will not be
considered a violation of any of the foregoing limitations, except that with
regard to the borrowings limitation in investment restriction number 4, the
Portfolios will comply with the applicable restrictions of Section 18 of the
1940 Act.
27
<PAGE>
TRUSTEES AND OFFICERS
The trustees and executive officers of the Trust, their business addresses
and principal occupations during the past five years are:
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME/AGE AND ADDRESS* POSITION WITH TRUST OTHER DIRECTORSHIPS
- --------------------- ------------------- --------------------
<S> <C> <C>
Margo N. Alexander**; 48 Trustee and Ms. Alexander is president, chief executive
President officer and a director of Mitchell
Hutchins. Prior to January 1995, Ms. Alex-
ander was an executive vice president of
PaineWebber. Ms. Alexander is also presi-
dent of 26 other investment companies for
which Mitchell Hutchins or PaineWebber
serves as investment adviser.
David J. Beaubien; 60 Trustee Mr. Beaubien is chairman of Yankee Environ-
101 Industrial Road mental Systems, Inc., a manufacturer of
Box 746 meteorological measuring systems. Prior to
Turners Falls, MA 01376 January 1991, he was senior vice president
of EG&G, Inc., a company which makes and
provides a variety of scientific and tech-
nically oriented products and services. He
is also a director if IEC, Inc., a manu-
facturer of electronic assemblies; Belfort
Instruments, Inc., a manufacturer of envi-
ronmental instruments; and Oriel Corp., a
manufacturer of optical instruments. From
1985 to January 1995, Mr. Beaubien served
as a director or trustee on the boards of
the Kidder, Peabody & Co. Incorporated mu-
tual funds. Mr. Beaubien is also a direc-
tor or trustee of 12 other investment com-
panies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
E. Garrett Bewkes, Jr.**; 68 Trustee Mr. Bewkes is a director of PaineWebber
Group Inc. ("PW Group") (holding company
of PaineWebber and Mitchell Hutchins) and
a consultant to PW Group. Prior to 1988,
he was chairman of the board, president
and chief executive officer of American
Bakeries Company. Mr. Bewkes is also a di-
rector of Interstate Bakeries Corporation
and a director or trustee of 26 other in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME/AGE AND ADDRESS* POSITION WITH TRUST OTHER DIRECTORSHIPS
- --------------------- ------------------- --------------------
<S> <C> <C>
William W Hewitt, Jr.; Trustee Mr. Hewitt is retired. Since 1988, he has
66 served as a director or trustee on the
P.O. Box 2359 boards of the Guardian Life Insurance Com-
Princeton, New Jersey pany mutual funds. From 1990 to January
08543-2359 1995, Mr. Hewitt served as a director or
trustee on the boards of the Kidder,
Peabody & Co. Incorporated mutual funds.
From 1986-1988, he was an executive vice
president and director of mutual funds,
insurance and trust services of Shearson
Lehman Brothers Inc. Mr. Hewitt is also a
director or trustee of 12 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Morton L. Janklow; 65 Trustee Mr. Janklow is a senior partner of Janklow
598 Madison Avenue Nesbit Associates, an international liter-
New York, New York 10022 ary agency representing leading authors in
their relationships with publishers and
motion picture, television and multi-media
companies, and of counsel to the law firm
of Janklow, Newborn & Ashley. Mr. Janklow
is also a director of Marvel Entertainment
Group Inc., a leading youth entertainment
company.
J. Richard Sipes**; 48 Trustee Mr. Sipes is director of Retail Underwrit-
1200 Harbor Boulevard ing and Trading for PaineWebber. Mr. Sipes
Weehawken, New Jersey is also a director of PW Trust Co.,
07087 PaineWebber Futures Management Corp.,
PaineWebber Properties Inc. and Puerto
Rico Investors Tax-Free Fund and Puerto
Rico Investors Tax-Free Fund II.
William D. White; 61 Trustee Mr. White is retired. From February 1989
P.O. Box 199 through March 1994, he was president of
Upper Black Eddy, PA the National League of Professional Base-
ball Clubs. Prior to 1989, he was a tele-
vision sportscaster for WPIX-TV, New York.
Mr. White is also a director or trustee of
nine other investment companies for which
PaineWebber or Mitchell Hutchins serves as
investment adviser.
Teresa M. Boyle; 36 Vice President Ms. Boyle is a first vice president and
manager--advisory administration of Mitch-
ell Hutchins. Prior to November 1993, she
was compliance manager of Hyperion Capital
Management, Inc., an investment advisory
firm. Prior to April 1993, Ms. Boyle was a
vice
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME/AGE AND ADDRESS* POSITION WITH TRUST OTHER DIRECTORSHIPS
- --------------------- ------------------- --------------------
<S> <C> <C>
president and manager--legal administra-
tion of Mitchell Hutchins. Ms. Boyle is
also a vice president of 39 other invest-
ment companies for which Mitchell Hutchins
or PaineWebber serves as investment advis-
er.
Joan L. Cohen; 30 Vice President and Ms. Cohen is a vice president and attorney
Assistant Secretary of Mitchell Hutchins. Prior to December
1993, she was an associate at the law firm
of Seward & Kissel. Ms. Cohen is also a
vice president and assistant secretary of
26 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
C. William Maher; 34 Vice President and Mr. Maher is a first vice president and the
Assistant Treasurer senior manager of the Fund Administration
Division of Mitchell Hutchins. Mr. Maher
is also a vice president and assistant
treasurer of 26 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Ann E. Moran; 37 Vice President and Ms. Moran is a vice president of Mitchell
Assistant Treasurer Hutchins. Ms. Moran is also a vice presi-
dent and assistant treasurer of 39 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Dianne E. O'Donnell; 42 Vice President and Ms. O'Donnell is a senior vice president
Secretary and deputy general counsel of Mitchell
Hutchins. Ms. O'Donnell is also a vice
president and secretary of 39 other in-
vestment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Victoria E. Schonfeld; Vice President Ms. Schonfeld is a managing director and
44 general counsel of Mitchell Hutchins. From
April 1990 to May 1994, she was a partner
in the law firm of Arnold & Porter. Prior
to April 1990, she was a partner in the
law firm of Shereff, Friedman, Hoffman &
Goodman. Ms. Schonfeld is also a vice
president of 39 other investment companies
for which Mitchell Hutchins or PaineWebber
serves as investment adviser.
Paul H. Schubert; 32 Vice President and Mr. Schubert is a vice president of Mitch-
Assistant Treasurer ell Hutchins. From August 1992 to August
1994, he was a vice president at BlackRock
Financial Management, L.P. Prior to August
1992, he was an audit manager with Ernst &
Young LLP. Mr. Schubert is also a vice
president and
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
BUSINESS EXPERIENCE;
NAME/AGE AND ADDRESS* POSITION WITH TRUST OTHER DIRECTORSHIPS
- --------------------- ------------------- --------------------
<S> <C> <C>
assistant treasurer of 39 other investment
companies for which Mitchell Hutchins or
PaineWebber serves as investment adviser.
Martha J. Slezak; 32 Vice President and Ms. Slezak is a vice president of Mitchell
Assistant Treasurer Hutchins. From September 1991 to April
1992, she was fund-raising director for a
U.S. Senate campaign. Prior to September
1991, she was a tax manager with Arthur
Andersen & Co. LLP. Ms. Slezak is also a
vice president and assistant treasurer of
39 other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
Julian F. Sluyters; 34 Vice President and Mr. Sluyters is a senior vice president and
Treasurer the director of the mutual fund finance
division of Mitchell Hutchins. Prior to
1991, he was an audit senior manager with
Ernst & Young LLP. Mr. Sluyters is also a
vice president and treasurer of 39 other
investment companies for which Mitchell
Hutchins or PaineWebber serves as invest-
ment adviser.
Gregory K. Todd; 38 Vice President and Mr. Todd is a first vice president and as-
Assistant Secretary sociate general counsel of Mitchell
Hutchins. Prior to 1993, he was a partner
in the law firm of Shereff, Friedman,
Hoffman & Goodman. Mr. Todd is also a vice
president and assistant secretary of 39
other investment companies for which
Mitchell Hutchins or PaineWebber serves as
investment adviser.
</TABLE>
- --------
* Unless otherwise indicated, the business address of each listed person is
1285 Avenue of the Americas, New York, New York 10019.
** Messrs. Bewkes and Sipes and Ms. Alexander are "interested persons" of the
Trust as defined in the 1940 Act by virtue of their positions with
PaineWebber, PW Group and/or Mitchell Hutchins.
The Trust pays trustees who are not "interested persons" of the Trust
$35,000 annually and $5,000 per meeting of the board or any committee thereof.
Trustees are reimbursed for any expenses incurred in attending meetings.
Trustees of the Trust who are "interested persons" of the Trust as defined in
the 1940 Act receive no compensation from the Trust. Trustees and officers of
the Trust own in the aggregate less than 1% of the shares of each Portfolio.
Because Mitchell Hutchins, the Advisers and PaineWebber perform substantially
all of the services necessary for the operation of the Trust and the
Portfolios, the Trust requires no employees. No officer, director or employee
of Mitchell Hutchins, an Adviser or PaineWebber presently receives any
compensation from the Trust for acting as a trustee or officer. The table
below includes certain information relating to the compensation of the Trust's
trustees.
31
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pensions or
Retirement
Benefits
Aggregate Accrued as Estimated Total Compensation
Compensation Part of a Annual from the Trust and
From the Portfolio's Benefits Upon the Fund Complex
Name of Person, Position Trust* Expenses Retirement Paid to Trustees+
- ------------------------ ------------ ----------- ------------- ------------------
<S> <C> <C> <C> <C>
Margo N. Alexander,
Trustee -- -- -- --
David J. Beaubien,
Trustee $60,000 -- -- --
E. Garrett Bewkes, Jr.,
Trustee -- -- -- --
William W. Hewitt,
Trustee 60,000 -- -- --
Morton L. Janklow,
Trustee 60,000 -- -- --
J. Richard Sipes,
Trustee -- -- -- --
William D. White,
Trustee 60,000 -- -- $33,250
</TABLE>
- --------
* Represents amounts estimated to be paid to each trustee during the fiscal
year ending July 31, 1996.
+ Represents amounts paid to each trustee during the calendar year ended
December 31, 1994.
32
<PAGE>
INVESTMENT MANAGEMENT, ADVISORY AND DISTRIBUTION
ARRANGEMENTS
INVESTMENT MANAGEMENT ARRANGEMENTS. Mitchell Hutchins acts as the investment
manager to the Trust pursuant to an investment management agreement with the
Trust ("Management Agreement") dated June 15, 1995. Pursuant to the Management
Agreement with the Trust, Mitchell Hutchins, subject to the supervision of the
Trust's board of trustees and in conformity with the stated policies of the
Trust, manages both the investment operations of the Trust and the composition
of the Trust's Portfolios, including the purchase, retention, disposition and
lending of securities. Mitchell Hutchins is authorized to enter into advisory
agreements for investment advisory services in connection with the management
of the Trust and the Portfolios. Mitchell Hutchins will have responsibility for
monitoring the investment advisory services furnished pursuant to any such
investment subadvisory agreements. Mitchell Hutchins reviews the performance of
all Advisers and makes recommendations to the trustees of the Trust with
respect to the retention and renewal of advisory contracts. In connection
therewith, Mitchell Hutchins is obligated to keep certain books and records of
the Trust. Mitchell Hutchins also administers the Trust's business affairs and,
in connection therewith, furnishes the Trust with office facilities, together
with those ordinary clerical and bookkeeping services which are not being
furnished by the Trust's custodian and the Transfer Agent, the Trust's transfer
and dividend disbursing agent. The management services of Mitchell Hutchins for
the Trust are not exclusive under the terms of the Management Agreement, and
Mitchell Hutchins is free to, and does, render management services to others.
As required by state regulation, Mitchell Hutchins will reimburse a Portfolio
if and to the extent that the aggregate operating expenses of the Portfolio
exceed applicable limits in any fiscal year. Currently, the most restrictive
such limit applicable to a Portfolio is 2.5% of the first $30 million of the
Portfolio's average daily net assets, 2.0% of the next $70 million of its
average daily net assets and 1.5% of its average daily net assets in excess of
$100 million. Certain expenses, such as brokerage commissions, taxes, interest,
distribution fees, certain expenses attributable to investing outside the
United States and extraordinary items, are excluded from this limitation.
In connection with its management of the business affairs of the Trust,
Mitchell Hutchins bears the following expenses:
(1) the salaries and expenses of all of its and the Trust's personnel except
the fees and expenses of trustees who are not affiliated persons of Mitchell
Hutchins or the Trust's Advisers;
(2) all expenses incurred, by Mitchell Hutchins or by the Trust in connection
with managing the ordinary course of the Trust's business, other than those
assumed by the Trust as described below; and
(3) the fees payable to each Adviser pursuant to the advisory agreements
between Mitchell Hutchins and each Adviser ("Advisory Agreement").
Under the terms of the Management Agreement, each Portfolio bears all
expenses incurred in its operation that are not specifically assumed by
Mitchell Hutchins or the Portfolio's Adviser. General expenses of the Trust not
readily identifiable as belonging to a Portfolio or to the Trust's other
Portfolios are allocated among series by or under the direction of the board of
trustees in such manner as the board deems to be fair and equitable. Expenses
borne by each Portfolio include the
33
<PAGE>
following (or a Portfolio's share of the following): (1) the cost (including
brokerage commissions) of securities purchased or sold by a Portfolio and any
losses incurred in connection therewith, (2) fees payable to and expenses
incurred on behalf of a Portfolio by Mitchell Hutchins, (3) organizational
expenses, (4) filing fees and expenses relating to the registration and
qualification of a Portfolio's shares and the Trust under federal and state
securities laws and maintenance of such registrations and qualifications, (5)
fees and salaries payable to trustees who are not interested persons (as
defined in the 1940 Act) of the Trust, Mitchell Hutchins or the Adviser, (6)
all expenses incurred in connection with trustees' services, including travel
expenses, (7) taxes (including any income or franchise taxes) and governmental
fees, (8) costs of any liability, uncollectible items of deposit and other
insurance or fidelity bonds, (9) any costs, expenses or losses arising out of a
liability of or claim for damages or other relief asserted against the Trust or
a Portfolio for violation of any law, (10) legal, accounting and auditing
expenses, including legal fees of special counsel for the independent trustees,
(11) charges of custodians, transfer agents and other agents, (12) costs of
preparing share certificates, (13) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders, and
costs of mailing such materials to existing shareholders, (14) any
extraordinary expenses (including fees and disbursements of counsel) incurred
by the Trust or a Portfolio, (15) fees, voluntary assessments and other
expenses incurred in connection with membership in investment company
organizations, (16) costs of mailing and tabulating proxies and costs of
meetings of shareholders, the board and any committees thereof, (17) the cost
of investment company literature and other publications provided to trustees
and officers and (18) costs of mailing, stationery and communications
equipment.
Under the Management Agreement, Mitchell Hutchins will not be liable for any
error or judgment or mistake of law or for any loss suffered by a Portfolio in
connection with the performance of the contract, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of Mitchell
Hutchins in the performance of its duties or from reckless disregard of its
duties and obligations thereunder. The Management Agreement terminates
automatically upon its assignment and is terminable at any time without penalty
by the Trust's board of trustees or by vote of the holders of a majority of a
Portfolio's outstanding voting securities, on 60 days' written notice to
Mitchell Hutchins or by Mitchell Hutchins on 60 days' written notice to the
Portfolio.
The following table shows the approximate net assets as of April 30, 1995,
sorted by category of investment objective, of the investment companies as to
which Mitchell Hutchins serves as adviser or subadviser. An investment company
may fall into more than one of the categories below.
<TABLE>
<CAPTION>
Investment Category Net Assets
------------------- ----------
($ mil)
<S> <C>
Domestic (excluding Money Market)................................. $5,702.3
Global............................................................ 3,370.5
Equity/Balanced................................................... 2,745.4
Fixed Income (excluding Money Market)............................. 6,327.4
Taxable Fixed Income............................................ 4,557.2
Tax-Free Fixed Income........................................... 1,770.2
Money Market Funds................................................ 17,716.5
</TABLE>
ADVISORY ARRANGEMENTS. As noted in the Prospectus, subject to the monitoring
of the Manager and, ultimately, the trustees, each Adviser manages the
securities held by the Portfolio it serves in
34
<PAGE>
accordance with the Portfolio's stated investment objectives and policies,
makes investment decisions for the Portfolio and places orders to purchase and
sell securities on behalf of the Portfolio.
The Advisory Agreements were approved by the board of trustees including a
majority of the Trustees who are not parties to such contract or interested
persons of any such parties, on June 15, 1995 and was approved by Mitchell
Hutchins, as sole shareholder of the Trust on June 19, 1995.
Each Advisory Agreement provides that it will terminate in the event of its
assignment (as defined in the 1940 Act) or upon the termination of the
Management Agreement. Each Advisory Agreement may be terminated by the Trust
upon not more than 60 days' written notice. Each Advisory Agreement may be
terminated by Mitchell Hutchins or the Adviser upon not more than 120 days'
written notice. Each Advisory Agreement provides that it will continue in
effect for a period of more than two years from its execution only so long as
such continuance is specifically approved at least annually in accordance with
the requirements of the 1940 Act.
Under the Advisory Agreement, the Advisers will not be liable for any error
or judgment or mistake of law or for any loss suffered by a Portfolio in
connection with the performance of the contract, except a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Advisers
in the performance of their duties or from reckless disregard of their duties
and obligations thereunder. Each Adviser has agreed to its fees as described in
the Prospectus and which are generally lower than the fees it charges to
institutional accounts for which it serves as investment adviser and performs
all administrative functions associated with serving in that capacity in
recognition of the reduced administrative responsibilities it has undertaken
with respect to the Portfolio. By virtue of the management, monitoring and
administrative functions performed by Mitchell Hutchins, and the fact that
Advisers are not required to make decisions regarding the allocation of assets
among the major sectors of the securities markets, each Adviser serves in a
subadvisory capacity to the Portfolio. Subject to the monitoring by the Manager
and, ultimately, the board of trustees, each Adviser's responsibilities are
limited to managing the securities held by the Portfolio it serves in
accordance with the Portfolio's stated investment objective and policies,
making investment decisions for the Portfolio and placing orders to purchase
and sell securities on behalf of the Portfolio.
DISTRIBUTION ARRANGEMENTS. Mitchell Hutchins acts as the distributor of the
shares of each Portfolio under a distribution contract with the Trust dated
June 15, 1995 ("Distribution Contract") that requires Mitchell Hutchins to use
its best efforts, consistent with its other businesses, to sell shares of the
Portfolios. Shares of the Portfolios are offered continuously. Under a dealer
agreement between Mitchell Hutchins and PaineWebber dated June 15, 1995
("Dealer Agreement"), PaineWebber sells the Portfolios' shares.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for a Portfolio other than PACE Money
Market Investments are made by the Adviser, subject to the overall review of
the Manager and the board of trustees. Decisions to buy and sell securities for
PACE Money Market Investments are made by Mitchell Hutchins, subject to the
overall review of the board of trustees. Although investment decisions for the
Portfolios are made independently from those of the other accounts managed by
the Adviser or Mitchell Hutchins, as applicable, investments of the type that
the Portfolio may make also may be made by those other accounts. When a
Portfolio and one or more other accounts managed by the
35
<PAGE>
Adviser or Mitchell Hutchins, as applicable, are prepared to invest in, or
desire to dispose of, the same security, available investments or opportunities
for sales will be allocated in a manner believed by the Adviser or Mitchell
Hutchins, as applicable, to be equitable to each. In some cases, this procedure
may adversely affect the price paid or received by a Portfolio or the size of
the position obtained or disposed of by a Portfolio.
Transactions on U.S. stock exchanges and some foreign stock exchanges involve
the payment of negotiated brokerage commissions. On exchanges on which
commissions are negotiated, the cost of transactions may vary among different
brokers. On most foreign exchanges, commissions are generally fixed. No stated
commission is generally applicable to securities traded in U.S. OTC markets,
but the prices of those securities include undisclosed commissions or mark-ups.
The cost of securities purchased from underwriters include an underwriting
commission or concession and the prices at which securities are purchased from
and sold to dealers include a dealer's mark-up or mark-down. U.S. government
securities generally are purchased from underwriters or dealers, although
certain newly issued U.S. government securities may be purchased directly from
the U.S. Treasury or from the issuing agency or instrumentality.
In selecting brokers or dealers to execute securities transactions on behalf
of a Portfolio, its Adviser or Mitchell Hutchins, as applicable, seeks the best
overall terms available. In assessing the best overall terms available for any
transactions, the Adviser or Mitchell Hutchins, as applicable, will consider
the factors it deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer and the reasonableness of the commission, if
any, for the specific transaction and on a continuing basis. In addition, each
Advisory Agreement between the Trust and an Adviser authorizes the Adviser, in
selecting brokers or dealers to execute a particular transaction, and in
evaluating the best overall terms available, to consider the brokerage and
research services (as those terms are defined in Section 28(c) of the
Securities Exchange Act of 1934) provided to the Portfolio and/or other
accounts over which the Adviser or its affiliates exercise investment
discretion. The fees under the Management Agreement and the Advisory
Agreements, respectively, are not reduced by reason of a Portfolio's Adviser
receiving brokerage and research services. The board of trustees of the Trust
will periodically review the commissions paid by a Portfolio to determine if
the commissions paid over representative periods of time were reasonable in
relation to the benefits inuring to the Portfolio. OTC purchases and sales by a
Portfolio are transacted directly with principal market makers except in those
cases in which better prices and executions may be obtained elsewhere.
To the extent consistent with applicable provisions of the 1940 Act and the
rules and exemptions adopted by the SEC under the 1940 Act, the board of
trustees has determined that transactions for a Portfolio may be executed
through PaineWebber and other affiliated broker-dealers if, in the judgment of
the Adviser, the use of an affiliated broker-dealer is likely to result in
price and execution at least as favorable as those of other qualified broker-
dealers, and if, in the transaction, the affiliated broker-dealer charges the
Portfolio a fair and reasonable rate.
No Portfolio will purchase any security, including U.S. government securities
or municipal securities, during the existence of any underwriting or selling
group relating thereto of which PaineWebber is a member, except to the extent
permitted by the SEC.
A Portfolio may use PaineWebber and other affiliated broker-dealers as a
commodities broker in connection with entering into futures contracts and
options on futures contracts if, in the
36
<PAGE>
judgment of the Adviser, the use of an affiliated broker-dealer is likely to
result in price and execution at least as favorable as those of other qualified
broker-dealers, and if, in the transaction, the affiliated broker-dealer
charges the Portfolio a fair and reasonable rate.
Research services furnished by dealers or brokers with or through which a
Portfolio effects securities transactions may be used by Mitchell Hutchins or
an Adviser in advising other funds or accounts and, conversely, research
services furnished to Mitchell Hutchins or an Adviser by dealers or brokers in
connection with other funds or accounts Mitchell Hutchins or an Adviser advises
may be used by Mitchell Hutchins or an Adviser in advising the Portfolios over
which Mitchell Hutchins or the Adviser has investment discretion. Information
and research received from such brokers or dealers will be in addition to, and
not in lieu of, the services required to be performed by Mitchell Hutchins or
the Advisers under the Investment Management and Administration Agreement and
Sub-Advisory Agreement.
PORTFOLIO TURNOVER
PACE Money Market Investments may attempt to increase yields by trading to
take advantage of short-term market variations, which results in high portfolio
turnover. Because purchases and sales of money market instruments are usually
effected as principal transactions, this policy does not result in high
brokerage commissions to the Portfolio. The other Portfolios do not intend to
seek profits through short-term trading. Nevertheless, the Portfolios will not
consider portfolio turnover rate a limiting factor in making investment
decisions.
A Portfolio's turnover rate is calculated by dividing the lesser of purchases
or sales of its portfolio securities for the year by the monthly average value
of the portfolio securities. Securities or options with remaining maturities of
one year or less on the date of acquisition are excluded from the calculation.
Under certain market conditions, a Portfolio authorized to engage in
transactions in options may experience increased portfolio turnover as a result
of its investment strategies. For instance, the exercise of a substantial
number of options written by a Portfolio (due to appreciation of the underlying
security in the case of call options or depreciation of the underlying security
in the case of put options) could result in a turnover rate in excess of 100%.
A portfolio turnover rate of 100% would occur if all of a Portfolio's
securities that are included in the computation of turnover were replaced once
during a period of one year.
Certain other practices that may be employed by a Portfolio also could result
in high portfolio turnover. For example, portfolio securities may be sold in
anticipation of a rise in interest rates (market decline) or purchased in
anticipation of a decline in interest rates (market rise) and later sold. In
addition, a security may be sold and another comparable quality purchased at
approximately the same time to take advantage of what an Adviser believes to be
a temporary disparity in the normal yield relationship between the two
securities. These yield disparities may occur for reasons not directly related
to the investment quality of particular issues or the general movement of
interest rates, such as changes in the overall demand for, or supply of,
various types of securities.
Portfolio turnover rates may vary greatly from year to year as well as within
a particular year and may be affected by cash requirements for redemptions of a
Portfolio's shares as well as by requirements that enable the Portfolio to
receive favorable tax treatment.
37
<PAGE>
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION
As discussed in the Prospectus, shares of each Portfolio may be exchanged
without payment of any exchange fee for shares of another Portfolio at their
respective net asset values. Portfolio shares, however, are not exchangeable
with shares of other PaineWebber mutual funds. Shareholders will receive at
least 60 days' notice of any termination or material modification of the
exchange offer, except no notice need be given if, under extraordinary
circumstances, either redemptions are suspended under the circumstances
described below or a Portfolio temporarily delays or ceases the sales of its
shares because it is unable to invest amounts effectively in accordance with
the Portfolio's investment objectives, policies and restrictions.
If conditions exist that make cash payments undesirable, each Portfolio
reserves the right to honor any request for redemption by making payment in
whole or in part in securities chosen by the Portfolio and valued in the same
way as they would be valued for purposes of computing the Portfolio's net
asset value. If payment is made in securities, a shareholder may incur
brokerage expenses in converting these securities into cash. The Trust has
elected, however, to be governed by Rule 18f-1 under the 1940 Act, under which
a Portfolio is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Portfolio during any 90-day
period for one shareholder. This election is irrevocable unless the SEC
permits its withdrawal. A Portfolio may suspend redemption privileges or
postpone the date of payment during any period (1) when the New York Stock
Exchange, Inc. ("NYSE") is closed or trading on the NYSE is restricted as
determined by the SEC, (2) when an emergency exists, as defined by the SEC,
that makes it not reasonably practicable for the Portfolio to dispose of
securities owned by it or fairly to determine the value of its assets or (3)
as the SEC may otherwise permit. The redemption price may be more or less than
the shareholder's cost, depending on the market value of a Portfolio's
portfolio at the time.
VALUATION OF SHARES
Each Portfolio determines its net asset value per share as of the close of
regular trading (currently 4:00 p.m., eastern time) on the NYSE on each Monday
through Friday when the NYSE is open. Currently, the NYSE is closed on the
observance of the following holidays: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Securities that are listed on U.S. and foreign stock exchanges are valued at
the last sale price on the day the securities are being valued or, lacking any
sales on such day, at the last available bid price. In cases where securities
are traded on more than one exchange, the securities are generally valued on
the exchange considered by Mitchell Hutchins as the primary market. Securities
traded in the OTC market and listed on the National Association of Securities
Dealers Automatic Quotation System ("NASDAQ") are valued at the last available
sale price on NASDAQ at 4:00 p.m., eastern time; other OTC securities are
valued at the last bid price available prior to valuation. Securities and
assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the
Trust's board of trustees. It should be recognized that judgment often plays a
greater role in valuing non-investment grade debt securities than is the case
with respect to securities for which a broader range of dealer quotations and
last-sale information is available. All investments quoted in foreign currency
are valued daily in U.S. dollars on the basis of the foreign currency exchange
rate prevailing at the time such valuation is
38
<PAGE>
determined by the Portfolios' custodian. The amortized cost method of valuation
generally is used to value debt obligations with 60 days or less remaining
until maturity, unless the board of trustees determines that this does not
represent fair value.
Foreign currency exchange rates are generally determined prior to the close
of trading on the NYSE. Occasionally events affecting the value of foreign
investments and such exchange rates occur between the time at which they are
determined and the close of trading on the NYSE, which events will not be
reflected in a computation of a Portfolio's net asset value on that day. If
events materially affecting the value of such investments or currency exchange
rates occur during such time period, the investments will be valued at their
fair value as determined in good faith by or under the direction of the Trust's
board of trustees. The foreign currency exchange transaction of a Portfolio
conducted on a spot (that is, cash) basis are valued at the spot rate for
purchasing or selling currency prevailing on the foreign exchange market. This
rate under normal market conditions differs from the prevailing exchange rate
in an amount generally less than one-tenth of one percent due to the costs of
converting from one currency to another.
PACE Money Market Investments values its portfolio securities in accordance
with the amortized cost method of valuation under Rule 2a-7 (the "Rule") under
the 1940 Act. To use amortized cost to value its portfolio securities, the
Portfolio must adhere to certain conditions under the Rule relating to the
Portfolio's investments, some of which are discussed in the Prospectus.
Amortized cost is an approximation of market value of an instrument, whereby
the difference between its acquisition cost and value at maturity is amortized
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating
interest rates is not taken into account and thus the amortized cost method of
valuation may result in the value of a security being higher or lower than its
actual market value. In the event that a large number of redemptions take place
at a time when interest rates have increased, the Portfolio might have to sell
portfolio securities prior to maturity and at a price that might not be
desirable.
The board of trustees of the Trust has established procedures ("Procedures")
for the purpose of maintaining a constant net asset value of $1.00 per share
for PACE Money Market Investments, which include a review of the extent of any
deviation of net asset value per share, based on available market quotations,
from the $1.00 amortized cost per share. Should that deviation exceed 1/2 of 1%
for any Portfolio, the board of trustees will promptly consider whether any
action should be initiated to eliminate or reduce material dilution or other
unfair results to shareholders. Such action may include redeeming shares in
kind, selling portfolio securities prior to maturity, reducing or withholding
dividends and utilizing a net asset value per share as determined by using
available market quotations. PACE Money Market Investments will maintain a
dollar-weighted average portfolio maturity of 90 days or less and will not
purchase any instrument with a remaining maturity greater than 13 months (as
calculated under the Rule), will limit portfolio investments, including
repurchase agreements, to those U.S. dollar-denominated instruments that are of
eligible quality under the Rule and that the Portfolio's Adviser, acting
pursuant to the Procedures, determine present minimal credit risks, and will
comply with certain reporting and recordkeeping procedures. There is no
assurance that a constant net asset value per share will be maintained. In the
event amortized cost ceases to represent fair value per share, the board will
take appropriate action.
In determining the approximate market value of portfolio investments, each
Portfolio may employ outside organizations, which may use a matrix or formula
method that takes into consideration market indices, matrices, yield curves and
other specific adjustments. This may result
39
<PAGE>
in the securities being valued at a price different from the price that would
have been determined had the matrix or formula method not been used. All cash,
receivables and current payables are carried at their face value. Other assets,
if any, are valued at fair value as determined in good faith by or under the
direction of the board of trustees.
PERFORMANCE INFORMATION
Each Portfolio's performance data quoted in advertising and other promotional
materials ("Performance Advertisements") represent past performance and are not
intended to indicate future performance. The investment return and principal
value of an investment will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
TOTAL RETURN CALCULATIONS. Average annual total return quotes ("Standardized
Return") used in a Portfolio's Performance Advertisements are calculated
according to the following formula:
P(1 + T) to the nth power = ERV
where: P = a hypothetical initial payment of $1,000 to purchase shares of a
Portfolio
T = average annual total return of shares of that Portfolio
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of that period.
Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated to the last
day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. All dividends and other distributions are assumed
to have been reinvested at net asset value.
Each Portfolio also may refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). A Portfolio calculates Non-Standardized
Return for specified periods of time by assuming an investment of $1,000 in
Portfolio shares and assuming the reinvestment of all dividends and other
distributions. The rate of return is determined by subtracting the initial
value of the investment from the ending value and by dividing the remainder by
the initial value.
YIELD. Yields used in a Portfolio's Performance Advertisements, except for
those given for PACE Money Market Investments, are calculated by dividing the
Portfolio's interest and dividend income attributable to the Portfolio's shares
for a 30-day period ("Period"), net of expenses attributable to such Portfolio,
by the average number of shares of such Portfolio entitled to receive dividends
during the Period and expressing the result as an annualized percentage
(assuming semi-annual compounding) of the net asset value per share at the end
of the Period. Yield quotations are calculated according to the following
formula:
a-b
YIELD = 2 [ (--- + 1) to the 6th power - 1 ]
cd
where: a = interest and other income earned during the period attributable to a
Portfolio
b = expenses accrued for the Period attributable to a Portfolio (net of
reimbursements)
c = the average daily number of shares of a Portfolio outstanding during
the period that were entitled to receive dividends
d = the net asset value per share on the last day of the Period
40
<PAGE>
Except as noted below, in determining interest and dividend income earned
during the Period (a variable in the above formula), a Portfolio calculates
interest earned on each debt obligation held by it during the Period by (1)
computing the obligation's yield to maturity, based on the market value of the
obligation (including actual accrued interest) on the last Business Day of the
Period or, if the obligation was purchased during the Period, the purchase
price plus accrued interest and (2) dividing the yield to maturity by 360, and
multiplying the resulting quotient by the market value of the obligation
(including actual accrued interest) to determine the interest income on the
obligation for each day of the subsequent period that the obligation is in the
portfolio. Once interest earned is calculated in this fashion for each debt
obligation held by the Portfolio, interest earned during the Period is then
determined by totalling the interest earned on all debt obligations. For
purposes of these calculations, the maturity of an obligation with one or more
call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
Tax exempt-yield for PACE Municipal Fixed Income Investments is calculated
according to the same formula except the variable "a" equals interest exempt
from federal income tax earned during the Period. This tax-exempt yield may
then be translated into tax-equivalent yield according to the following
formula:
e
TAX EQUIVALENT YIELD = ( -- ) + t
1p
E = tax-exempt yield of the Portfolio
p = stated income tax rate
t = taxable yield of the Portfolio
The tax-equivalent yield of PACE Municipal Fixed Income Investments assumes a
39.6% effective federal tax rate.
PACE Money Market Investments computes its yield and effective yield
quotations using standardized methods required by the SEC. The Portfolio from
time to time advertises (1) its current yield based on a recently ended seven-
day period, computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical pre-existing account having a balance
of one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from that shareholder account, dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then multiplying the base period return by (365/7), with the
resulting yield figure carried to at least the nearest hundredth of one
percent, and (2) its effective yield based on the same seven-day period by
compounding the base period return by adding 1, raising the sum to a power
equal to (365/7), and subtracting 1 from the result, according to the following
formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) to the power of 365 / 7 ] - 1
Yield may fluctuate daily and does not provide a basis for determining future
yields. Because the yield of each Portfolio fluctuates, it cannot be compared
with yields on savings accounts or other investment alternatives that provide
an agreed-to or guaranteed fixed yield for a stated period of time. However,
yield information may be useful to an investor considering temporary
investments
41
<PAGE>
in money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each Portfolio's investment policies,
including the types of investments made, the average maturity of the portfolio
securities and whether there are any special account charges that may reduce
the yield.
OTHER INFORMATION. In Performance Advertisements, each Portfolio may compare
its Standardized Return and/or their Non-Standardized Return with data
published by Lipper Analytical Services, Inc. ("Lipper"), CDA Investment
Technologies, Inc. ("CDA"), Wiesenberger Investment Companies Services
("Wiesenberger"), Investment Company Data, Inc. ("ICD"), or Morningstar Mutual
Funds ("Morningstar") or with the performance of appropriate recognized stock
and other indices, including (but not limited to) the Standard & Poor's 500
Composite Stock Price Index, the Dow Jones Industrial Average, the Wilshire
5000 Index, other Wilshire Associates equities indices, Frank Russell Company
equity indices, the Morgan Stanley Capital International Perspective Indices,
the Salomon Brothers World Government bond indices, the Lehman Brothers Bond
indices, Municipal Bond Buyers Indices, 90 day Treasury Bills, 30-year and 10-
year U.S. Treasury Bonds and changes in the Consumer Price Index as published
by the U.S. Department of Commerce. The Portfolio also may refer in such
materials to mutual fund performance rankings and other data, such as
comparative asset, expense and fee levels, published by Lipper, CDA,
Wiesenberger, ICD or Morningstar. Performance Advertisements also may refer to
discussions of a Portfolio and comparative mutual fund data and ratings
reported in independent periodicals, including (but not limited to) THE WALL
STREET JOURNAL, MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD,
BARRON'S, FORTUNE, THE NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST
and THE KIPLINGER LETTERS. Ratings may include criteria relating to portfolio
characteristics in addition to performance information. In connection with a
ranking, a Portfolio may also provide additional information with respect to
the ranking, such as the particular category to which it relates, the number of
funds in the category, the criteria on which the ranking is based, and the
effect of sales charges, fee waivers and/or expense reimbursements.
Each Portfolio may include discussions or illustrations of the effects of
compounding in Performance Advertisements. "Compounding" refers to the fact
that, if dividends or other distributions on a Portfolio investment are
reinvested by being paid in additional Portfolio shares, any future income or
capital appreciation of the Portfolio would increase the value, not only of the
original Portfolio investment, but also of the additional Portfolio shares
received through reinvestment. As a result, the value of the Portfolio
investment would increase more quickly than if dividends or other distributions
had been paid in cash.
TAXES
ALL PORTFOLIOS. Each Portfolio is treated as a separate corporation for
federal income tax purposes. In order to qualify for treatment as a regulated
investment company ("RIC") under the Internal Revenue Code, each Portfolio must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income, net short-term capital gain and, for certain Portfolios, net
gains from certain foreign currency transactions) plus, in the case of PACE
Municipal Fixed Income Investments, its net interest income excludable from
gross income under section 103(a) of the Internal Revenue Code
42
<PAGE>
("Distribution Requirement") and must meet several additional requirements.
With respect to each Portfolio, these requirements include the following: (1)
the Portfolio must derive at least 90% of its gross income each taxable year
from dividends, interest, payments with respect to securities loans and gains
from the sale or other disposition of securities or foreign currencies, or
other income (including gains from options, futures or forward currency
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) the Portfolio must derive less
than 30% of its gross income each taxable year from the sale or other
disposition of securities, or any of the following, that were held for less
than three months--options or futures (other than those on foreign currencies),
or foreign currencies (or options, futures or forward contracts thereon) that
are not directly related to the Portfolio's principal business of investing in
securities (or options and futures with respect to securities) ("Short-Short
Limitation"); (3) at the close of each quarter of the Portfolio's taxable year,
at least 50% of the value of its total assets must be represented by cash and
cash items, U.S. government securities, securities of other RICs and other
securities, with these other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Portfolio's total
assets and that does not represent more than 10% of the issuer's outstanding
voting securities; and (4) at the close of each quarter of the Portfolio's
taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. government securities or the securities
of other RICs) of any one issuer.
Dividends and other distributions declared by a Portfolio in October,
November or December of any year and payable to shareholders of record on a
date in any of those months will be deemed to have been paid by the Portfolio
and received by the shareholders on December 31 of that year if the
distributions are paid by the Portfolio during the following January.
Accordingly, those distributions will be taxed to shareholders for the year in
which that December 31 falls.
A portion of the dividends from a Portfolio's investment company taxable
income (whether paid in cash or in additional Portfolio shares) may be eligible
for the dividends-received deduction allowed to corporations. The eligible
portion may not exceed the aggregate dividends received by a Portfolio from
U.S. corporations. However, dividends received by a corporate shareholder and
deducted by it pursuant to the dividends-received deduction are subject
indirectly to the alternative minimum tax.
If shares of a Portfolio are sold at a loss after being held for six months
or less, the loss will be treated as long-term, instead of short- term, capital
loss to the extent of any capital gain distributions received on those shares.
Investors also should be aware that if shares are purchased shortly before the
record date for any dividend or capital gain distribution, the shareholder will
pay full price for the shares and receive some portion of the price back as a
taxable distribution.
Dividends and interest received by certain Portfolios may be subject to
income, withholding or other taxes imposed by foreign countries and U.S.
possessions that would reduce the yield on their securities. Tax conventions
between certain countries and the United States may reduce or eliminate these
foreign taxes, however, and many foreign countries do not impose taxes on
capital gains in respect of investments by foreign investors. If more than 50%
of the value of a Portfolio's total assets at the close of its taxable year
consists of securities of foreign corporations, the Portfolio will be eligible
to, and may, file an election with the Internal Revenue Service that will
enable its shareholders, in effect, to receive the benefit of the foreign tax
credit with respect to any foreign and U.S. possessions income taxes paid by
it. Pursuant to the election, the Portfolio would treat those taxes as
dividends paid to its shareholders and each shareholder would be required to
(1) include in
43
<PAGE>
gross income, and treat as paid by the shareholder, the shareholder's
proportionate share of those taxes, (2) treat the shareholder's share of those
taxes and of any dividend paid by the Portfolio that represents income from
foreign or U.S. possessions sources as the shareholder's own income from those
sources, and (3) either deduct the taxes deemed paid by the shareholder in
computing the shareholder's taxable income or, alternatively, use the foregoing
information in calculating the foreign tax credit against the shareholder's
federal income tax. Each Portfolio will report to its shareholders shortly
after each taxable year their respective shares of the Portfolio's income from
sources within, and taxes paid to, foreign countries and U.S. possessions if it
makes this election.
Each Portfolio will be subject to a nondeductible 4% excise tax ("Excise
Tax") to the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31 of that year, plus certain
other amounts.
The use of hedging and option income strategies, such as writing (selling)
and purchasing options and futures and entering into forward currency
contracts, involves complex rules that will determine for income tax purposes
the character and timing of recognition of the gains and losses a Portfolio
realizes in connection therewith. Income from the disposition of foreign
currencies (except certain gains therefrom that may be excluded by future
regulations), and income from transactions in options, futures and forward
contracts derived by a Portfolio with respect to its business of investing in
securities or foreign currencies, will qualify as permissible income under the
Income Requirement. However, income from the disposition of options and futures
(other than those on foreign currencies) will be subject to the Short-Short
Limitation if they are held for less than three months. Income from the
disposition of foreign currencies, and options, futures and forward contracts
on foreign currencies, that are not directly related to a Portfolio's principal
business of investing in securities (or options and futures with respect to
securities) also will be subject to the Short-Short Limitation if they are held
for less than three months.
If a Portfolio satisfies certain requirements, any increase in value of a
position that is part of a "designated hedge" will be offset by any decrease in
value (whether realized or not) of the offsetting hedging position during the
period of the hedge for purposes of determining whether the Portfolio satisfies
the Short-Short Limitation. Thus, only the net gain (if any) from the
designated hedge will be included in gross income for purposes of that
limitation. Each Portfolio will consider whether it should seek to qualify for
this treatment for its hedging transactions. To the extent a Portfolio does not
qualify for this treatment, it may be forced to defer the closing out of
certain options, futures and forward currency contracts beyond the time when it
otherwise would be advantageous to do so, in order for the Portfolio to qualify
as a RIC.
Certain Portfolios may acquire zero coupon Treasury securities, zero coupon
securities of corporate issuers, other securities issued with original issue
discount ("OID") and payment-in-kind ("PIK") securities. As the holder of such
securities, each such Portfolio would have to include in its gross income (1)
the OID that accrues on the securities during the taxable year, even if it
receives no corresponding payment on the securities during the year, and (2)
the securities it receives as "interest" on PIK securities. With respect to
clause (1) above, each Portfolio will elect similar treatment for securities
purchased at a discount from their face value ("market discount"). Because each
Portfolio annually must distribute substantially all of its investment company
taxable income, including any accrued OID, market discount and other non-cash
income, in order to satisfy the
44
<PAGE>
Distribution Requirement and avoid imposition of the Excise Tax, a Portfolio
may be required in a particular year to distribute as a dividend an amount that
is greater than the total amount of cash it actually receives. Those
distributions will be made from a Portfolio's cash assets or from the proceeds
of sales of portfolio securities, if necessary. A Portfolio may realize capital
gains or losses from those sales, which would increase or decrease the
Portfolio's investment company taxable income and/or net capital gain (the
excess of net long-term capital gain over net short-term capital loss). In
addition, any such gains may be realized on the disposition of securities held
for less than three months. Because of the Short-Short Limitation, any such
gains would reduce a Portfolio's ability to sell other securities, or certain
options, futures or forward currency contracts, held for less than three months
that it might wish to sell in the ordinary course of its portfolio management.
PACE INTERNATIONAL EQUITY INVESTMENTS AND PACE INTERNATIONAL EMERGING MARKETS
EQUITY INVESTMENTS. Each of these Portfolios may invest in the stock of
"passive foreign investment companies" ("PFICs"). A PFIC is a foreign
corporation that, in general, meets either of the following tests: (1) at least
75% of its gross income is passive or (2) an average of at least 50% of its
assets produce, or are held for the production of, passive income. Under
certain circumstances, a Portfolio will be subject to federal income tax on a
portion of any "excess distribution" received on the stock of a PFIC or of any
gain on disposition of such stock (collectively "PFIC income"), plus interest
thereon, even if the Portfolio distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included
in the Portfolio's investment company taxable income and, accordingly, will not
be taxable to it to the extent that income is distributed to its shareholders.
If a Portfolio invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF") then in lieu of the foregoing tax and interest
obligation, the Portfolio will be required to include in income each year its
pro rata share of the QEF's annual ordinary earnings and net capital gain, even
if they are not distributed by the QEF to the Portfolio; those amounts likely
would have to be distributed by the Portfolio to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax. In most instances it will
be very difficult, if not impossible, to make this election because of certain
requirements thereof.
Pursuant to proposed regulations, open-end RICs, such as the Portfolios,
would be entitled to elect to "mark-to-market" their stock in certain PFICs.
"Marking-to-market," in this context, means recognizing as gain for each
taxable year the excess, as of the end of that year, of the fair market value
of each such PFIC's stock over the owner's adjusted basis in that stock
(including mark-to-market gain for each prior year for which an election was in
effect).
PACE MUNICIPAL FIXED INCOME INVESTMENTS. Entities or other persons who are
"substantial users" (or persons related to "substantial users") of facilities
financed by IDBs or PABs should consult their tax advisers before purchasing
shares of this Portfolio because, for users of certain of these facilities, the
interest on those bonds is not exempt from federal income tax. For these
purposes, "substantial user" is defined to include a "non-exempt person" who
regularly uses in a trade or business a part of a facility financed from the
proceeds of IDBs or PABs.
Up to 85% of social security and railroad retirement benefits may be included
in taxable income for recipients whose adjusted gross income (including income
from tax-exempt sources such as the Portfolio) plus 50% of their benefits
exceeds certain base amounts. Exempt-interest dividends from the Portfolio
still are tax-exempt to the extent described in the Prospectus; they are only
included in the calculations of whether a recipient's income exceeds the
established amounts.
45
<PAGE>
If shares of the Portfolio are sold at a loss after being held for six months
or less, the loss will be disallowed to the extent of any exempt-interest
dividends received on those shares and will be treated as long-term, instead of
short-term, capital loss to the extent of any capital gain distributions
received thereon.
Although the Portfolio does not currently expect to invest in instruments
that generate taxable interest income, if it does so, under the circumstances
described in the Prospectus, the portion of any Portfolio dividend attributable
to the interest earned thereon will be taxable to the Portfolio's shareholders
as ordinary income to the extent of the Portfolio's earnings and profits, and
only the remaining portion will qualify as an exempt-interest dividend. The
respective portions will be determined by the "actual earned" method, under
which the portion of any dividend that qualifies as an exempt-interest dividend
may vary, depending on the relative proportions of tax-exempt and taxable
interest earned during the dividend period. Moreover, if the Portfolio realizes
capital gain as a result of market transactions, any distributions of the gain
will be taxable to its shareholders.
OTHER INFORMATION
The name of the Trust is Managed Accounts Services Portfolio Trust. The Trust
is organized as a Delaware business trust. Although Delaware law statutorily
limits the potential liabilities of a Delaware business trust's shareholders to
the same extent as it limits the potential liabilities of shareholders of a
Delaware corporation, shareholders of a Portfolio could, under certain
conflicts of laws jurisprudence in various states, be held personally liable
for the obligations of the Trust or a Portfolio. However, the Trust's Trust
Instrument disclaims shareholder liability for acts or obligations of the Trust
or its Portfolios and requires that notice of such disclaimer be given in each
written obligation made or issued by the trustees or by any officers or officer
by or on behalf of the Trust, the Portfolios, the trustees or any of them in
connection with the Trust. The Trust Instrument provides for indemnification
from a Portfolio's property for all losses and expenses of any Portfolio
shareholder held personally liable for the obligations of a Portfolio. Thus,
the risk of a shareholder's incurring financial loss on account of shareholder
liability is limited to circumstances in which a Portfolio itself would be
unable to meet its obligations, a possibility which Mitchell Hutchins believes
is remote and not material. Upon payment of any liability incurred by a
shareholder solely by reason of being or having been a shareholder of a
Portfolio, the shareholder paying such liability will be entitled to
reimbursement from the general assets of the Portfolio. The trustees intend to
conduct the operations of the Portfolios in such a way as to avoid, as far as
possible, ultimate liability of the shareholders for liabilities of the
Portfolios.
COUNSEL. The law firm of Kirkpatrick & Lockhart LLP, 1800 M Street, N.W.,
Washington, D.C. 20036-5891 has passed upon the legality of the shares offered
by the Prospectus. Kirkpatrick & Lockhart LLP also acts as counsel to Mitchell
Hutchins and PaineWebber in connection with other matters.
INDEPENDENT AUDITORS. Ernst & Young LLP, New York, New York, serves as the
Trust's independent auditors.
46
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Managed Accounts Services Portfolio Trust
We have audited each of the accompanying statements of assets and liabilities
of Managed Accounts Services Portfolio Trust (comprising, respectively, PACE
Money Market Investments, PACE Government Securities Fixed Income Investments,
PACE Intermediate Fixed Income Investments, PACE Strategic Fixed Income
Investments, PACE Municipal Fixed Income Investments, PACE Global Fixed Income
Investments, PACE Large Company Value Equity Investments, PACE Large Company
Growth Equity Investments, PACE Small/Medium Company Value Equity Investments,
PACE Small/Medium Company Growth Equity Investments, PACE International Equity
Investments and PACE International Emerging Markets Equity Investments
Portfolios) as of June 16, 1995. These statements of assets and liabilities are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these statements of assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of Managed
Accounts Services Portfolio Trust at June 16, 1995 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
June 16, 1995
47
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE MONEY MARKET INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................ $ 12,000
Deferred organizational expenses................................ 94,833
--------
Total assets.................................................. 106,833
--------
Liabilities:
Organizational expenses payable................................. 94,833
--------
Total liabilities............................................. 94,833
--------
Net Assets (applicable to 12,000 shares of beneficial interest,
$0.001 par value, issued and outstanding)........................ $ 12,000
========
Net asset value per share......................................... $ 1.00
========
</TABLE>
ORGANIZATION
PACE Money Market Investments (the "Portfolio") is a diversified portfolio of
Managed Accounts Services Portfolio Trust (the "Trust"). The Trust is
registered with the Securities and Exchange Commission as an open-end
management investment company currently composed of twelve separate no-load
investment portfolios and was organized as a Delaware business trust under the
laws of the State of Delaware by Certificate of Trust dated September 9, 1994,
as amended June 9, 1995. The trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest of separate series, par value
$0.001 per share. Prior to June 16, 1995, the Trust has had no activities other
than organizational matters and the sale to Mitchell Hutchins Asset Management
Inc. ("Mitchell Hutchins") of 12,000 shares of beneficial interest of the
Portfolio for $12,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational cost, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENT
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate of 0.15% of the Portfolio's average
daily net assets. In addition, the Portfolio also pays Mitchell Hutchins an
administration fee that is computed daily and paid monthly at an annual rate of
0.20% of the Portfolio's average daily net assets.
48
<PAGE>
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 0.50% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the Pace Program, shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
49
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE GOVERNMENT SECURITIES FIXED INCOME INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................. $ 8,000
Deferred organizational expenses................................. 94,833
--------
Total assets................................................... 102,833
--------
Liabilities:
Organizational expenses payable.................................. 94,833
--------
Total liabilities.............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest, $0.001
par value, issued and outstanding)................................ $ 8,000
========
Net asset value per share.......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE Government Securities Fixed Income Investments (the "Portfolio") is a
diversified portfolio of Managed Accounts Services Portfolio Trust (the
"Trust"). The Trust is registered with the Securities and Exchange Commission
as an open-end management investment company currently composed of twelve
separate no-load investment portfolios and was organized as a Delaware business
trust under the laws of the State of Delaware by Certificate of Trust dated
September 9, 1994, as amended June 9, 1995. The trustees of the Trust have
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share. Prior to June 16, 1995, the Trust
has had no activities other than organizational matters and the sale to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") of 667 shares of
beneficial interest of the Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
50
<PAGE>
of 0.50% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement, between Mitchell Hutchins and
Pacific Investment Management Company (the "Sub-Adviser"), Mitchell Hutchins
(not the Portfolio) pays the Sub-Adviser a fee at the annual rate of 0.25% of
the Portfolio's average daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 0.85% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
51
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE INTERMEDIATE FIXED INCOME INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................ $ 8,000
Deferred organizational expenses ............................... 94,833
--------
Total assets.................................................. 102,833
--------
Liabilities:
Organizational expenses payable................................. 94,833
--------
Total liabilities............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest,
$0.001 par value, issued and outstanding)........................ $ 8,000
========
Net asset value per share......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE Intermediate Fixed Income Investments (the "Portfolio") is a non-
diversified portfolio of Managed Accounts Services Portfolio Trust (the
"Trust"). The Trust is registered with the Securities and Exchange Commission
as an open-end management investment company currently composed of twelve
separate no-load investment portfolios and was organized as a Delaware business
trust under the laws of the State of Delaware by Certificate of Trust dated
September 9, 1994, as amended June 9, 1995. The trustees of the Trust have
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share. Prior to June 16, 1995, the Trust
has had no activities other than organizational matters and the sale to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") of 667 shares of
beneficial interest of the Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
52
<PAGE>
of 0.40% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and Pacific
Income Advisers, Inc. (the "Sub-Adviser"), Mitchell Hutchins (not the
Portfolio) pays the Sub-Adviser a fee at the annual rate of 0.20% of the
Portfolio's average daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 0.85% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
53
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE STRATEGIC FIXED INCOME INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................. $ 8,000
Deferred organizational expenses................................. 94,833
--------
Total assets................................................... 102,833
--------
Liabilities:
Organizational expenses payable.................................. 94,833
--------
Total liabilities.............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest, $0.001
par value, issued and outstanding)................................ $ 8,000
========
Net asset value per share.......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE Strategic Fixed Income Investments (the "Portfolio") is a diversified
portfolio of Managed Accounts Services Portfolio Trust (the "Trust"). The Trust
is registered with the Securities and Exchange Commission as an open-end
management investment company currently composed of twelve separate no-load
investment portfolios and was organized as a Delaware business trust under the
laws of the State of Delaware by Certificate of Trust dated September 9, 1994,
as amended June 9, 1995. The trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest of separate series, par value
$0.001 per share. Prior to June 16, 1995, the Trust has had no activities other
than organizational matters and the sale to Mitchell Hutchins Asset Management
Inc. ("Mitchell Hutchins") of 667 shares of beneficial interest of the
Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
54
<PAGE>
of 0.50% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and Pacific
Investment Management Company (the "Sub-Adviser"), Mitchell Hutchins (not the
Portfolio) pays the Sub-Adviser a fee at the annual rate of 0.25% of the
Portfolio's average daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 0.85% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
55
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE MUNICIPAL FIXED INCOME INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................. $ 8,000
Deferred organizational expenses ................................ 94,833
--------
Total assets................................................... 102,833
--------
Liabilities:
Organizational expenses payable.................................. 94,833
--------
Total liabilities.............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest, $0.001
par value, issued and outstanding)................................ $ 8,000
========
Net asset value per share.......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE Municipal Fixed Income Investments (the "Portfolio") is a diversified
portfolio of Managed Accounts Services Portfolio Trust (the "Trust"). The Trust
is registered with the Securities and Exchange Commission as an open-end
management investment company currently composed of twelve separate no-load
investment portfolios and was organized as a Delaware business trust under the
laws of the State of Delaware by Certificate of Trust dated September 9, 1994,
as amended June 9, 1995. The trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest of separate series, par value
$0.001 per share. Prior to June 16, 1995, the Trust has had no activities other
than organizational matters and the sale to Mitchell Hutchins Asset Management
Inc. ("Mitchell Hutchins") of 667 shares of beneficial interest of the
Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
56
<PAGE>
of 0.40% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and Morgan
Grenfell Capital Management, Incorporated (the "Sub-Adviser"), Mitchell
Hutchins (not the Portfolio) pays the Sub-Adviser a fee at the annual rate of
0.20% of the Portfolio's average daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 0.85% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the Pace Program, shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
57
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE GLOBAL FIXED INCOME INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................. $ 8,000
Deferred organizational expenses................................. 94,833
--------
Total assets................................................... 102,833
--------
Liabilities:
Organizational expenses payable.................................. 94,833
--------
Total liabilities.............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest, $0.001
par value, issued and outstanding)................................ $ 8,000
========
Net asset value per share.......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE Global Fixed Income Investments (the "Portfolio") is a non-diversified
portfolio of Managed Accounts Services Portfolio Trust (the "Trust"). The Trust
is registered with the Securities and Exchange Commission as an open-end
management investment company currently composed of twelve separate no-load
investment portfolios and was organized as a Delaware business trust under the
laws of the State of Delaware by Certificate of Trust dated September 9, 1994,
as amended June 9, 1995. The trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest of separate series, par value
$0.001 per share. Prior to June 16, 1995, the Trust has had no activities other
than organizational matters and the sale to Mitchell Hutchins Asset Management
Inc. ("Mitchell Hutchins") of 667 shares of beneficial interest of the
Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
58
<PAGE>
of 0.60% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and Rogge
Global Partners plc (the "Sub-Adviser"), Mitchell Hutchins (not the Portfolio)
pays the Sub-Adviser a fee at the annual rate of 0.35% of the Portfolio's
average daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 0.95% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, Shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
59
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE LARGE COMPANY VALUE EQUITY INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................ $ 8,000
Deferred organizational expenses................................ 94,833
--------
Total assets.................................................. 102,833
--------
Liabilities:
Organizational expenses payable................................. 94,833
--------
Total liabilities............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest,
$0.001 par value, issued and outstanding)........................ $ 8,000
========
Net asset value per share......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE Large Company Value Equity Investments (the "Portfolio") is a
diversified portfolio of Managed Accounts Services Portfolio Trust (the
"Trust"). The Trust is registered with the Securities and Exchange Commission
as an open-end management investment company currently composed of twelve
separate no-load investment portfolios and was organized as a Delaware business
trust under the laws of the State of Delaware by Certificate of Trust dated
September 9, 1994, as amended June 9, 1995. The trustees of the Trust have
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share. Prior to June 16, 1995, the Trust
has had no activities other than organizational matters and the sale to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") of 667 shares of
beneficial interest of the Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
60
<PAGE>
of 0.60% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and Brinson
Partners, Inc. (the "Sub-Adviser"), Mitchell Hutchins (not the Portfolio) pays
the Sub-Adviser a fee at the annual rate of 0.30% of the Portfolio's average
daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 1.00% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
61
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE LARGE COMPANY GROWTH EQUITY INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................... $ 8,000
Deferred organizational expenses................................... 94,833
--------
Total assets..................................................... 102,833
--------
Liabilities:
Organizational expenses payable.................................... 94,833
--------
Total liabilities................................................ 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest, $0.001
par value, issued and outstanding).................................. $ 8,000
========
Net asset value per share............................................ $ 12.00
========
</TABLE>
ORGANIZATION
PACE Large Company Growth Equity Investments (the "Portfolio") is a
diversified portfolio of Managed Accounts Services Portfolio Trust (the
"Trust"). The Trust is registered with the Securities and Exchange Commission
as an open-end management investment company currently composed of twelve
separate no-load investment portfolios and was organized as a Delaware business
trust under the laws of the State of Delaware by Certificate of Trust dated
September 9, 1994, as amended June 9, 1995. The trustees of the Trust have
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share. Prior to June 16, 1995, the Trust
has had no activities other than organizational matters and the sale to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") of 667 shares of
beneficial interest of the Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
62
<PAGE>
of 0.60% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and
Chancellor Capital Management, Inc. (the "Sub-Adviser"), Mitchell Hutchins (not
the Portfolio) pays the Sub-Adviser a fee at the annual rate of 0.30% of the
Portfolio's average daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 1.00% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
63
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE SMALL/MEDIUM COMPANY VALUE EQUITY INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................. $ 8,000
Deferred organizational expenses ................................ 94,833
--------
Total assets................................................... 102,833
--------
Liabilities:
Organizational expenses payable.................................. 94,833
--------
Total liabilities.............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest, $0.001 $ 8,000
par value, issued and outstanding)................................ ========
Net asset value per share.......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE Small/Medium Company Value Equity Investments (the "Portfolio") is a
diversified portfolio of Managed Accounts Services Portfolio Trust (the
"Trust"). The Trust is registered with the Securities and Exchange Commission
as an open-end management investment company currently composed of twelve
separate no-load investment portfolios and was organized as a Delaware business
trust under the laws of the State of Delaware by Certificate of Trust dated
September 9, 1994, as amended June 9, 1995. The trustees of the Trust have
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share. Prior to June 16, 1995, the Trust
has had no activities other than organizational matters and the sale to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") of 667 shares of
beneficial interest of the Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
64
<PAGE>
of 0.60% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and
Brandywine Asset Management, Inc. (the "Sub-Adviser"), Mitchell Hutchins (not
the Portfolio) pays the Sub-Adviser a fee at the annual rate of 0.30% of the
Portfolio's average daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 1.00% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
65
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE SMALL/MEDIUM COMPANY GROWTH EQUITY INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................. $ 8,000
Deferred organizational expenses ................................ 94,833
--------
Total assets................................................... 102,833
--------
Liabilities:
Organizational expenses payable.................................. 94,833
--------
Total liabilities.............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest, $0.001
par value, issued and outstanding)................................ $ 8,000
========
Net asset value per share.......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE Small/Medium Company Growth Equity Investments (the "Portfolio") is a
diversified portfolio of Managed Accounts Services Portfolio Trust (the
"Trust"). The Trust is registered with the Securities and Exchange Commission
as an open-end management investment company currently composed of twelve
separate no-load investment portfolios and was organized as a Delaware business
trust under the laws of the State of Delaware by Certificate of Trust dated
September 9, 1994, as amended June 9, 1995. The trustees of the Trust have
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share. Prior to June 16, 1995, the Trust
has had no activities other than organizational matters and the sale to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") of 667 shares of
beneficial interest of the Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
66
<PAGE>
of 0.60% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and
Westfield Capital Management Company, Inc. (the "Sub-Adviser"), Mitchell
Hutchins (not the Portfolio) pays the Sub-Adviser a fee at the annual rate of
0.30% of the Portfolio's average daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 1.00% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, Shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolio of
the Trust.
67
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE INTERNATIONAL EQUITY INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................. $ 8,000
Deferred organizational expenses ................................ 94,833
--------
Total assets................................................... 102,833
--------
Liabilities:
Organizational expenses payable.................................. 94,833
--------
Total liabilities.............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest, $0.001
per value, issued and outstanding)................................ $ 8,000
========
Net asset value per share.......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE International Equity Investments (the "Portfolio") is a diversified
portfolio of Managed Accounts Services Portfolio Trust (the "Trust"). The Trust
is registered with the Securities and Exchange Commission as an open-end
management investment company currently composed of twelve separate no-load
investment portfolios and was organized as a Delaware business trust under the
laws of the State of Delaware by Certificate of Trust dated September 9, 1994,
as amended June 9, 1995. The trustees of the Trust have authority to issue an
unlimited number of shares of beneficial interest of separate series, par value
$0.001 per share. Prior to June 16, 1995, the Trust has had no activities other
than organizational matters and the sale to Mitchell Hutchins Asset Management
Inc. ("Mitchell Hutchins") of 667 shares of beneficial interest of the
Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
68
<PAGE>
of 0.70% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and Martin
Currie Inc. (the "Sub-Adviser"), Mitchell Hutchins (not the Portfolio) pays the
Sub-Adviser a fee at the annual rate of 0.40% of the Portfolio's average daily
net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 1.50% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, Shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolios of
the Trust.
69
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
PACE INTERNATIONAL EMERGING MARKETS EQUITY INVESTMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 16, 1995
<TABLE>
<S> <C>
Assets:
Cash............................................................. $ 8,000
Deferred organizational expenses ................................ 94,833
--------
Total assets................................................... 102,833
--------
Liabilities:
Organizational expenses payable.................................. 94,833
--------
Total liabilities.............................................. 94,833
--------
Net Assets (applicable to 667 shares of beneficial interest, $0.001
par value, issued and outstanding)................................ $ 8,000
========
Net asset value per share.......................................... $ 12.00
========
</TABLE>
ORGANIZATION
PACE International Emerging Markets Equity Investments (the "Portfolio") is a
diversified portfolio of Managed Accounts Services Portfolio Trust (the
"Trust"). The Trust is registered with the Securities and Exchange Commission
as an open-end management investment company currently composed of twelve
separate no-load investment portfolios and was organized as a Delaware business
trust under the laws of the State of Delaware by Certificate of Trust dated
September 9, 1994, as amended June 9, 1995. The trustees of the Trust have
authority to issue an unlimited number of shares of beneficial interest of
separate series, par value $0.001 per share. Prior to June 16, 1995, the Trust
has had no activities other than organizational matters and the sale to
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") of 667 shares of
beneficial interest of the Portfolio for $8,000.
Costs incurred and to be incurred in connection with the organization and
initial registration of the Trust will be paid initially by Mitchell Hutchins;
however, the Trust will reimburse Mitchell Hutchins for such costs. Such
organizational costs, estimated at $94,833, and representing the Portfolio's
allocation of total organizational costs incurred by the Trust will be deferred
and amortized on the straight line method over a period not to exceed 60 months
from the date the Trust commences investment operations.
MANAGEMENT AGREEMENTS
The Trust has entered into an Investment Management Agreement (the
"Management Agreement") with Mitchell Hutchins. Under the Management Agreement,
the Portfolio pays Mitchell Hutchins a fee for its services that is computed
daily and paid monthly at the annual rate
70
<PAGE>
of 0.90% of the Portfolio's average daily net assets. In addition, the
Portfolio also pays Mitchell Hutchins an administration fee that is computed
daily and paid monthly at the annual rate of 0.20% of the Portfolio's average
daily net assets.
Under a separate Sub-Advisory Agreement between Mitchell Hutchins and
Schroder Capital Management International Inc. (the "Sub-Adviser"), Mitchell
Hutchins (not the Portfolio) pays the Sub-Adviser a fee at the annual rate of
0.50% of the Portfolio's average daily net assets.
OTHER INFORMATION
Through the Portfolio's first fiscal year ending July 31, 1996, Mitchell
Hutchins will voluntarily reimburse expenses of the Portfolio or waive all or a
portion of the fees otherwise payable to them, or both, up to the point which
will lower the overall expense ratio of the Portfolio to 1.50% of the
Portfolio's average daily net assets.
Shares of the Portfolio currently are available only to participants in the
PaineWebber PACE Program ("PACE Program"). Under the PACE Program, Shareholders
will pay PaineWebber Incorporated a separate investment advisory fee at an
annual rate of up to 1.50% of the value of shares of each of the portfolio of
the Trust.
71
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S LONG-TERM DEBT RATINGS
Aaa. Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues; Aa. Bonds which are
rated "Aa" are judged to be of high quality by all standards. Together with the
"Aaa" group they comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of protection may not be as
large as in "Aaa" securities or fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the long-
term risks appear somewhat greater than the "Aaa" securities; A. Bonds which
are rated "A" possess many favorable investment attributes and are considered
as upper-medium-grade obligations. Factors giving security to principal and
interest are considered adequate, but elements may be present which suggest a
susceptibility to impairment some time in the future; Baa. Bonds which are
rated "Baa" are considered as medium-grade obligations (i.e., they are neither
highly protected nor poorly secured). Interest payments and principal security
appear adequate for the present, but certain protective elements may be lacking
or may be characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well; Ba. Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well-assured. Often
the protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class; B. Bonds which are
rated "B" generally lack characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance of other terms of the
contract over any long period of time may be small.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from "Aa" through "B" in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P CORPORATE DEBT RATINGS
AAA. Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong; AA. Debt rated "AA" has a
very strong capacity to pay interest and repay principal and differs from the
higher rated issues only in small degree; A. Debt rated "A" has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories; BBB. Debt rated "BBB" is
regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
higher rated categories; BB, B. Debt rated "BB" and "B" is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. "BB"
indicates the lowest degree of speculation. While such debt will likely have
some quality and
72
<PAGE>
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions; BB. Debt rated "BB" has less near-
term vulnerability to default than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The "BB" rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied "BBB--"
rating; B. Debt rated "B" has a greater vulnerability to default but currently
has the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB--" rating.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
NR indicates that no public rating has been requested, that there is
insufficient information in which to base a rating or that S&P does not rate a
particular type of obligation as matter of policy.
DESCRIPTION OF MOODY'S PREFERRED STOCK RATINGS
"aaa". An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks; "aa". An issue
which is rated "aa" is considered a high-grade preferred stock. This rating
indicates that there is reasonable assurance that earnings and asset protection
will remain relatively well maintained in the foreseeable future; "a". An issue
which is rated "a" is considered to be an upper-medium grade preferred stock.
While risks are judged to be somewhat greater than in the "aaa" and "aa"
classification, earnings and asset protection are nevertheless expected to be
maintained at adequate levels; "baa". An issue which is rated "baa" is
considered to be medium grade preferred stock, neither highly protected nor
poorly secured. Earnings and asset protection appear adequate at present but
may be questionable over any great length of time; "ba". An issue which is
rated "ba" is considered to have speculative elements and its future cannot be
considered well assured. Earnings and asset protection may be very moderate and
not well safeguarded during adverse periods. Uncertainty of position
characterizes preferred stocks in this class; "b". An issue which is rated "b"
generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long
period of time may be small; "caa". An issue which is rated "caa" is likely to
be in arrears on dividend payments. This rating designation does not purport to
indicate the future status of payments; "ca". An issue which is rated "ca" is
speculative in a high degree and is likely to be in arrears on dividends with
little likelihood of eventual payments; "c". This is the lowest rated class of
preferred or preference stock. Issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
73
<PAGE>
DESCRIPTION OF S&P PREFERRED STOCK RATINGS
"AAA". This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations. "AA". A preferred stock issue rated "AA" also qualifies as a
high-quality fixed income security. The capacity to pay preferred stock
obligations is very strong, although not as overwhelming as for issues rated
"AAA"; "A". An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions; "BBB". An
issue rated "BBB" is regarded as backed by an adequate capacity to pay the
preferred stock obligations. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to make payments for a preferred stock in
this category than for issues in the "A" category; "BB", "B", "CCC". Preferred
stocks rated "BB", "B" and "CCC" are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay preferred stock
obligations. "BB" indicates the lowest degree of speculation and "CCC" the
highest degree of speculation. While such issues will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications of preferred
stock quality, the ratings from "AA" to "CCC" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
DESCRIPTION OF MOODY'S SHORT-TERM DEBT RATINGS
PRIME-1. Issuers (or supporting institutions) rated Prime-1 (P-1) have a
superior capacity for repayment of short-term promissory obligations. P-1
repayment capacity will normally be evidenced by many of the following
characteristics: Leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; well-
established access to a range of financial markets and assured sources of
alternate liquidity. PRIME-2. Issuers (or supporting institutions) rated Prime-
2 (P-2) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above, but to a lesser degree. Earnings trends and coverage ratios, while
sound will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
DESCRIPTION OF S&P COMMERCIAL PAPER RATINGS
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety. A-1. This
designation indicates that the degree of safety regarding timely payment is
either overwhelming or very strong. Those issues determined to possess
overwhelming safety characteristics are denoted with a plus (+) sign
designation. A-2. Capacity for timely payment on issues with this designation
is strong. However, the relative degree of safety is not as high as for issues
designated "A-1". A-3. Issues carrying this designation have a satisfactory
capacity for timely payment. They are, however, somewhat more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the
higher designations. B. Issues rated "B" are regarded
74
<PAGE>
as having only an adequate capacity for timely payment. However, such capacity
may be damaged by changing conditions or short-term adversities.
DESCRIPTION OF MOODY'S FOUR HIGHEST MUNICIPAL BOND RATINGS
Aaa. Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa. Bonds which are rated Aa are judged to be of high quality by all
standards. They are rated lower than the Aaa bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude, or there may be other elements
present which made the long-term risks appear somewhat larger than in Aaa
securities.
A. Bonds which are rated A are judged to be upper medium grade obligations.
Security for principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the future.
Baa. Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
DESCRIPTION OF S&P FOUR HIGHEST MUNICIPAL BOND RATINGS
AAA. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree. The
AA rating may be modified by the addition of a plus or minus sign to show
relative standing within the AA rating category.
A. Debt rated A is regarded as safe. This rating differs from the two higher
ratings because, with respect to general obligation bonds, there is some
weakness which, under certain adverse circumstances, might impair the ability
of the issuer to meet debt obligations at some future date. With respect to
revenue bonds, debt service coverage is good but not exceptional and stability
of pledged revenues could show some variations because of increased competition
or economic influences in revenues.
BBB. Bonds rated BBB are regarded as having adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this capacity
than for bonds in the A category.
75
<PAGE>
DESCRIPTION OF MOODY'S HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER
SHORT-TERM LOANS
Moody's ratings for state and municipal notes and other short-term loans are
designated "Moody's Investment Grade" ("MIG" or, for variable or floating rate
obligations, "VMIG"). Such ratings recognize the differences between short-term
credit risk and long-term risk. Factors affecting the liquidity of the borrower
and short-term cyclical elements are critical in short-term ratings. Symbols
used will be as follows:
MIG-1/VMIG-1. This designation denotes best quality. There is present
strong protection from established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing or both.
MIG-2/VMIG-2. Loans bearing this designation are of high quality, with
margins of protection that are ample although not so large as in the
preceding group.
DESCRIPTION OF S&P RATINGS OF STATE AND MUNICIPAL NOTES AND OTHER SHORT- TERM
LOANS
S&P TAX EXEMPT NOTE RATINGS ARE GENERALLY GIVEN TO SUCH NOTES THAT MATURE IN
THREE YEARS OR LESS. THE TWO HIGHER RATING CATEGORIES ARE AS FOLLOWS:
SP-1. Very strong or strong capacity to pay principal and interest. These
issues determined to possess overwhelming safety characteristics will be
given a plus (+) designation.
SP-2. Satisfactory capacity to pay principal and interest.
76
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT POLICIES AND RESTRICTIONS........................................ 1
HEDGING AND RELATED STRATEGIES.............................................. 16
TRUSTEES AND OFFICERS....................................................... 28
INVESTMENT MANAGEMENT, ADVISORY AND DISTRIBUTION ARRANGEMENTS............... 33
PORTFOLIO TRANSACTIONS...................................................... 35
ADDITIONAL EXCHANGE AND REDEMPTION INFORMATION.............................. 38
VALUATION OF SHARES......................................................... 38
PERFORMANCE INFORMATION..................................................... 40
TAXES....................................................................... 42
OTHER INFORMATION........................................................... 46
APPENDIX.................................................................... 72
</TABLE>
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements - [filed herewith]
Included in Part B of the Registration Statement:
Statement of Assets and Liabilities at June 16, 1995
Report of Ernst & Young LLP, Independent Auditors, dated June 16, 1995
(b) Exhibits:
<TABLE>
<S> <C> <C>
(1) (a) Certificate of Business Trust/1/
(b) Certificate of Amendment/1/
(c) Trust Instrument/1/
(d) Amended Trust Instrument [filed herewith]
(2) (a) By-Laws/1/
(b) Amended By-Laws [filed herewith]
(3) Voting trust agreement - None
(4) Specimen Security - None
(5) (a) Form of Management Agreement [filed herewith]
(b) Form of Sub-Advisory Agreements [filed herewith]
(6) (a) Distribution Agreement [filed herewith]
(b) Dealer Agreement [filed herewith]
(7) Bonus, profit sharing or pension plans - None
(8) Form of Custodian Agreement [filed herewith]
(9) Form of Transfer Agency Agreement [filed herewith]
(10) Opinion and consent of Kirkpatrick & Lockhart LLP, counsel to the
Registrant [filed herewith]
(11) Consent of Independent Auditors [filed herewith]
(12) Financial statements omitted from prospectus - None
(13) Letter of investment intent [filed herewith]
(14) Prototype Retirement Plan - None
(15) Plan pursuant to Rule 12b-1 - None
(16) Schedule for Computation of Performance Quotations - None
Item 25. Persons Controlled By or Under Common Control with Registrant
-------------------------------------------------------------
None.
</TABLE>
_______________
/1/ Incorporated by reference to Registration Statement on Form N-1A, File
No. 33-87254, filed December 9, 1994.
<PAGE>
Item 26. Number of Holders of Securities
-------------------------------
<TABLE>
<CAPTION>
Number of Record Shareholders
Title of Class as of June 16, 1995
-------------- -----------------------------
<S> <C>
Shares of beneficial interest, par value $0.001
per share, in
PACE Money Market Investments 1
PACE Municipal Fixed Income Investments 1
PACE Government Securities Fixed Income 1
Investments
PACE Intermediate Fixed Income Investments 1
PACE Strategic Fixed Income Investments 1
PACE Global Fixed Income Investments 1
PACE Large Company Value Equity 1
Investments
PACE Large Company Growth Equity 1
Investments
PACE Small/Medium Company Value Equity 1
Investments
PACE Small/Medium Company Growth Equity 1
Investments
PACE International Equity Investments 1
PACE International Emerging Markets Equity 1
Investments
</TABLE>
<PAGE>
Item 27. Indemnification
- -------------------------
Article IX, Section 2 of the Managed Accounts Services Portfolio Trust
Trust Instrument ("Trust Instrument") provides that the Registrant will
indemnify its trustees, officers, employees, investment managers and
administrators and investment advisers to the fullest extent permitted by law
against claims and expenses asserted against or incurred by them by virtue of
being or having been a trustee, officer, employee, investment manager and
administrator and investment adviser; provided that (i) no such person
shall be indemnified where there has been an adjudication or other
determination, as described in Article IX, that such person is liable to the
Registrant or its shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office, or did not act in good faith in the reasonable belief that
his or her action was in the best interest of the Registrant, or (ii) no such
person shall be indemnified where there has been a settlement, unless there has
been a determination that such person did not engage in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office; such determination shall be made (A) by the court
or other body approving the Settlement, (B) by the vote of at least a majority
of those trustees who are neither Interested Persons of the trust nor are
parties to the proceeding based upon a review of readily available facts (as
opposed to a full trial-type inquiry), or (C) by written opinion of independent
legal counsel based upon a review of readily available facts (as opposed to a
full trial-type inquiry).
"Interested Person" has the meaning provided in the Investment Company Act
of 1940, as amended from time to time. Article IX, Section 2(c) of the Trust
Instrument also provides that the Registrant may maintain insurance policies
covering such rights of indemnification.
Article IX, Section 1 of the Trust Instrument provides that the trustees
and officers of the Registrant (i) shall not be personally liable to any person
contracting with, or having a claim against, the Trust, and (ii) shall not be
liable for neglect or wrongdoing by them or any officer, agent, employee or
investment adviser of the Registrant, provided they have exercised reasonable
care and have acted under the reasonable belief that their actions are in the
best interest of the Registrant.
Article X, Section 2 of the Trust Instrument provides that, subject to the
provisions of Article IX, the trustees shall not be liable for (i) errors of
judgment or mistakes of fact or law, or (ii) any act or omission made in
accordance with advice of counsel or other experts, or (iii) failure to follow
such advice, with respect to the meaning and operation of the Trust Instrument.
Registrant undertakes to carry out all indemnification provisions of its
Trust Instrument and By-laws in accordance with Investment Company Act Release
No. 11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be provided to trustees, officers and controlling
persons of the Trust, pursuant to the foregoing provisions or otherwise, the
Trust has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Trust of expenses
incurred or paid by a trustee, officer or controlling person of the Trust in
connection with the successful defense of any action, suit or proceeding or
payment pursuant to any insurance policy) is asserted against the Trust by such
trustee, officer or controlling person in connection with the securities being
registered, the Trust will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Brandywine Asset Management, Inc. ("Brandywine") is a registered investment
adviser. William Anthony Hitschler owns 32.5% of Brandywine's voting securities,
which makes him a controlling person of Brandywine. Information on the officers
and directors of Brandywine is included in its Form ADV filed with the
Securities and Exchange Commission (registration number 801-27797) and is
incorporated herein by reference.
Brinson Partners, Inc. ("Brinson Partners") is a registered investment
adviser. Gary P. Brinson is President and Managing Partner of Brinson Partners.
Brinson Holdings, Inc., which owns all of the outstanding stock of Brinson
Partners, is wholly-owned by Swiss Bank Corporation ("Swiss Bank"). Swiss Bank,
with headquarters in Basel, Switzerland, is an internationally diversified
organization with operations in many aspects of the financial services industry.
Information on the officers and directors of Brinson Partners is included in its
Form ADV filed with the Securities and Exchange Commission (registration number
801-34910) and is incorporated herein by reference.
<PAGE>
Chancellor Capital Management, Inc. ("Chancellor") is a registered
investment adviser. Chancellor Partners, L.P. ("Chancellor Partners"), of which
Chancellor Partners, Inc. ("Chancellor PI") is the General Partner, is the
beneficial owner of at least 51% of Chancellor's common stock on a fully diluted
and converted basis, while USF&G Investment Management Group, Inc. ("USF&G") is
the beneficial owner of 100% of Chancellor's convertible preferred stock which
is convertible into and up to 49% of Chancellor's common stock. Chancellor
Partners is a limited partnership controlled by Chancellor employees to hold
their investment in Chancellor. Robert G. Wade Jr., who is Chairman of
Chancellor's Board of Directors, is the sole shareholder of Chancellor PI.
Accordingly, Mr. Wade, Chancellor Partners and USF&G are controlling persons of
Chancellor. USF&G is a wholly owned subsidiary of United States Fidelity and
Guarantee Company, which is in turn wholly owned by USF&G Corporation, a holding
company with interests in, among other things, the insurance industry.
Information on the officers and directors of Chancellor is included in its Form
ADV filed with the Securities and Exchange Commission (registration number
801-9087) and is incorporated herein by reference.
Martin Currie Inc. ("Martin Currie") is a registered investment adviser.
It is a wholly owned subsidiary of Martin Currie Limited, a UK money manager.
Information on the officers and directors of Martin Currie is included in its
Form ADV filed with the Securities and Exchange Commission (registration number
801-14261) and is incorporated herein by reference.
Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") is a
registered investment adviser and is a wholly owned subsidiary of PaineWebber
Incorporated ("PaineWebber"), which is in turn wholly owned by Paine Webber
Group Inc., a publicly owned financial services holding company. Mitchell
Hutchins is primarily engaged in the investment advisory business. Information
on the officers and directors of Mitchell Hutchins is included in its Form ADV
filed with the Securities and Exchange Commission (registration number 801-
13219) and is incorporated herein by reference.
Morgan Grenfell Capital Management, Incorporated ("MGCM") is a registered
investment adviser. All of the outstanding voting stock of MGCM is owned by
Morgan Grenfell Asset Management, Ltd., which is a wholly owned subsidiary of
Morgan Grenfell Group plc. Morgan Grenfell Group plc is an indirect wholly
owned subsidiary of Deutsche Bank AG, an international commercial and investment
banking group. Information on the officers and directors of MGCM is included in
its Form ADV filed with the Securities and Exchange Commission (registration
number 801-27291) and is incorporated herein by reference.
Pacific Income Advisers, Inc. ("PIA") is a registered investment adviser.
Lloyd McAdams and Heather U. Baines, who serve as Chairman and Chief Investment
Officer of PIA and President and Chief Executive Officer, respectively, own
PIA's voting securities, which makes each of them controlling persons of PIA.
Information on the officers and directors of PIA is included in its Form ADV
filed with the Securities and Exchange Commission (registration number 801-
27828) and is incorporated herein by reference.
Pacific Investment Management Company ("PIMCO") is a registered investment
adviser. It is a subsidiary partnership of PIMCO Advisors L.P. ("PIMCO
Advisors"), a publicly held investment advisory firm. A majority interest in
PIMCO Advisors is held by PIMCO Partners, G.P., ("PIMCO Partners") a general
partnership between Pacific financial Asset Management Corporation, an indirect
wholly owned subsidiary of Pacific Mutual Life Insurance Company ("Pacific
Mutual"), and PIMCO Partners, L.P., a limited partnership controlled by the
PIMCO Managing Directors. Information on the officers and directors of PIMCO is
included in its Form ADV filed with the Securities and Exchange Commission
(registration number 801-7260) and is incorporated herein by reference.
Rogge Global Partners plc ("Rogge Global") is a registered investment
adviser. Olaf Rogge owns in excess of 85% of the voting securities of Rogge
Global, which makes him a controlling person of Rogge Global. Information on the
officers and directors of Rogge Global is included in its Form ADV filed with
the Securities and Exchange Commission (registration number 801-25482) and is
incorporated herein by reference.
Schroder Capital Management International Inc. ("SCMI") is a registered
investment adviser. It is a wholly owned U.S. subsidiary of Schroders
Incorporated, the wholly owned U.S. holding company subsidiary of Schroders plc.
Schroders plc, which is listed on the London Stock Exchange, is the holding
parent of a large worldwide group of banks and financial services companies
(referred to as the "Schroder Group"), with associated companies and branch and
representative offices located in seventeen countries worldwide. Information on
the officers and directors of SCMI is included in its Form ADV filed with the
Securities and Exchange Commission (registration number 801-15834) and is
incorporated herein by reference. Westfield Capital Management Company, Inc.
("Westfield Capital") is a registered investment adviser. Charles Michael
Hazard, who serves as President and Chief Investment Officer of Westfield
Capital, owns more than
<PAGE>
25% of its voting securities, which makes him a controlling person of Westfield
Capital. Information on the officers and directors of Westfield Capital is
included in its Form ADV filed with the Securities and Exchange Commission
(registration number 801-34350) and is incorporated herein by reference.
Item 29. Principal Underwriters
----------------------
(a) Mitchell Hutchins Asset Management Inc. ("Mitchell Hutchins") serves as
principal underwriter and/or investment adviser for the following
investment companies:
.ALL-AMERICAN TERM TRUST INC.
.GLOBAL HIGH INCOME DOLLAR FUND INC.
.GLOBAL INCOME PLUS FUND, INC.
.GLOBAL SMALL CAP FUND INC.
.INFINITY MUTUAL FUNDS, INC. (CORRESPONDENT CASH RESERVES - MONEY MARKET
PORTFOLIO)
.INSTITUTIONAL SERIES TRUST
.MITCHELL HUTCHINS/KIDDER, PEABODY EQUITY INCOME FUND, INC.
.MITCHELL HUTCHINS/KIDDER, PEABODY GOVERNMENT INCOME FUND, INC.
.MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST
.MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST II
.MITCHELL HUTCHINS/KIDDER, PEABODY INVESTMENT TRUST III
.PAINEWEBBER AMERICA FUND
.PAINEWEBBER ATLAS FUND
.PAINEWEBBER CASHFUND, INC.
.PAINEWEBBER INVESTMENT SERIES
.PAINEWEBBER MANAGED ASSETS TRUST
.PAINEWEBBER MANAGED INVESTMENTS TRUST
.PAINEWEBBER MASTER SERIES, INC.
.PAINEWEBBER MUNICIPAL SERIES
.PAINEWEBBER MUTUAL FUND TRUST
.PAINEWEBBER OLYMPUS FUND
.PAINEWEBBER PREMIER HIGH INCOME TRUST INC.
.PAINEWEBBER PREMIER INSURED MUNICIPAL INCOME FUND INC.
.PAINEWEBBER PREMIER TAX-FREE INCOME FUND INC.
.PAINEWEBBER REGIONAL FINANCIAL GROWTH FUND INC.
.PAINEWEBBER SECURITIES TRUST
.PAINEWEBBER SERIES TRUST
.STRATEGIC GLOBAL INCOME FUND, INC.
.TRIPLE A AND GOVERNMENT SERIES - 1995, INC.
.TRIPLE A AND GOVERNMENT SERIES - 1997, INC.
.2002 TARGET TERM TRUST INC.
<PAGE>
(b) Mitchell Hutchins is the principal underwriter for the Registrant.
PaineWebber acts as a dealer for the shares of the Registrant. The
directors and officers of Mitchell Hutchins, their principal business
addresses and their positions and offices with Mitchell Hutchins are
identified in its Form ADV filed February 22, 1995, with the Securities and
Exchange Commission (registration number 801-13219). The directors and
officers of PaineWebber, their principal business addresses and their
positions and offices with PaineWebber are identified in its Form ADV filed
March 31, 1995, with the Securities and Exchange Commission (registration
number 801-7163). The foregoing information is hereby incorporated by
reference. The information set forth below is furnished for those
directors and officers of Mitchell Hutchins or PaineWebber who also serve
as trustees or officers of the Registrant:
<TABLE>
<CAPTION>
Name and Principal Position and Offices With
Business Address Position With Registrant Underwriter or Dealer
- ------------------ ------------------------ -------------------------
<S> <C> <C>
Margo N. Alexander Trustee and President President, Chief Executive
1285 Avenue of the Americas Officer and Director of
New York, New York 10019 Mitchell Hutchins
Teresa M. Boyle Vice President First Vice President and
1285 Avenue of the Americas Manager--Advisory
New York, New York 10019 Administration of Mitchell
Hutchins
Joan L. Cohen Vice President and Vice President and Attorney
1285 Avenue of the Americas Assistant Secretary of Mitchell Hutchins
New York, New York 10019
C. William Maher Vice President and First Vice President and the
1285 Avenue of the Americas Assistant Treasurer Senior Manager of the Funds
New York, New York 10019 Administration Division of
Mitchell Hutchins
Ann E. Moran Vice President and Vice President of Mitchell
1285 Avenue of the Americas Assistant Treasurer Hutchins
New York, New York 10019
Dianne E. O'Donnell Vice President and Senior Vice President and
1285 Avenue of the Americas Secretary Deputy General Counsel of
New York, New York 10019 Mitchell Hutchins
Victoria E. Schonfeld Vice President Managing Director and
1285 Avenue of the Americas General Counsel of Mitchell
New York, New York 10019 Hutchins
Paul H. Schubert Vice President and Vice President of Mitchell
1285 Avenue of the Americas Assistant Treasurer Hutchins
New York, New York 10019
Martha J. Slezak Vice President and Vice President of Mitchell
1285 Avenue of the Americas Assistant Treasurer Hutchins
New York, New York 10019
Julian F. Sluyters Vice President and Senior Vice President and
1285 Avenue of the Americas Treasurer Director of the Mutual Fund
New York, New York 10019 Finance Division of Mitchell
Hutchins
Gregory K. Todd Vice President and First Vice President and
1285 Avenue of the Americas Assistant Secretary Associate General Counsel of
New York, New York 10019 Mitchell Hutchins
(c) None
</TABLE>
Item 30. Location of Accounts and Records
--------------------------------
<PAGE>
The books and other documents required by paragraphs (b)(4), (c) and (d) of
Rule 31a-1 under the Investment Company Act of 1940 are maintained in the
physical possession of Mitchell Hutchins Asset Management Inc., 1285 Avenue of
the Americas, New York, New York 10019, Pacific Investment Management Company,
840 Newport Center Drive, Suite 360, Newport Beach, California 92660, Pacific
Income Advisers, Inc., 1299 Ocean Avenue, Suite 210, Santa Monica, California
90401, Morgan Grenfell Capital Management, Incorporated, 1435 Walnut Street,
Philadelphia, Pennsylvania 19102, Rogge Global Partners plc, 5-6 St., Andrew's
Hill, London, England EC4V 5BY, Brinson Partners, Inc., 209 South LaSalle
Street, Chicago, Illinois 60604, Chancellor Capital Management, Inc., 1166
Avenue of the Americas, New York, New York 10036, Brandywine Asset
Management, Inc., Three Christina Centre, Suite 1200, 201 N. Walnut Street,
Wilmington, Delaware 19801, Westfield Capital Management Company, Inc., One
Financial Center, Boston, Massachusetts 02111, Martin Currie Inc., Saltire
Court, 20 Castle Terrace, Edinburgh, Scotland EH1 2ES and Schroder Capital
Management International Inc., 787 Seventh Avenue, New York, New York
10019. All other accounts, books and documents required by Rule 31a-1 are
maintained in the physical possession of Registrant's transfer agent and
custodian.
Item 31. Management Services
-------------------
Not applicable.
Item 32. Undertakings
------------
Registrant hereby undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of Registrant's 1933 Act Registration Statement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Pre-
Effective Amendment No. 2 to the Registrant's Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of New York, and the State of New York, on the 16th day of June 1995.
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
By: /s/ Margo N. Alexander
--------------------------------------------------
Margo N. Alexander
President and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Margo N. Alexander President and Trustee June 16, 1995
- --------------------------------
Margo N. Alexander
/s/ Julian F. Sluyters Vice President and Treasurer June 16, 1995
- --------------------------------
Julian F. Sluyters
/s/ David J. Beaubien Trustee June 16, 1995
- --------------------------------
David J. Beaubien
/s/ E. Garrett Bewkes, Jr. Trustee June 16, 1995
- --------------------------------
E. Garrett Bewkes, Jr.
/s/ William W. Hewitt, Jr. Trustee June 16, 1995
- --------------------------------
William W. Hewitt, Jr.
/s/ Morton L. Janklow Trustee June 16, 1995
- --------------------------------
Morton L. Janklow
/s/ J. Richard Sipes Trustee June 16, 1995
- --------------------------------
J. Richard Sipes
/s/ William D. White Trustee June 16, 1995
- --------------------------------
William D. White
</TABLE>
<PAGE>
EXHIBIT 99.1(d)
MANAGED ACCOUNTS SERVICES
PORTFOLIO TRUST
TRUST INSTRUMENT
September 9, 1994
(Revised June 9, 1995)
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I -- Definitions...................................... 1
-----------
ARTICLE II -- The Trustees.................................... 2
------------
Section 1. Management of the Trust................... 2
Section 2. Initial Trustees; Number and Election of
Trustees.................................. 2
Section 3. Term of Office............................ 3
Section 4. Vacancies; Appointment of Trustees........ 3
Section 5. Temporary Vacancy or Absence.............. 3
Section 6. Chairman.................................. 3
Section 7. Action by the Trustees.................... 4
Section 8. Ownership of Trust Property............... 4
Section 9. Effect of Trustees Not Serving............ 4
Section 10. Trustees, etc. as Shareholders............ 4
ARTICLE III -- Powers of the Trustees......................... 5
----------------------
Section 1. Powers.................................... 5
Section 2. Certain Transactions...................... 8
ARTICLE IV -- Series; Classes; Shares........................ 8
-----------------------
Section 1. Establishment of Series or Class.......... 8
Section 2. Shares.................................... 8
Section 3. Investment in the Trust................... 9
Section 4. Assets and Liabilities of Series.......... 9
Section 5. Ownership and Transfer of Shares.......... 10
Section 6. Status of Shares; Limitation of
Shareholder Liability..................... 11
ARTICLE V -- Distributions and Redemptions.................... 11
-----------------------------
Section 1. Distributions............................. 11
Section 2. Redemptions............................... 11
Section 3. Determination of Net Asset Value.......... 12
Section 4. Suspension of Right of Redemption......... 12
Section 5. Redemptions Necessary for Qualification
as Regulated Investment Company........... 13
ARTICLE VI -- Shareholders' Voting Powers and Meetings........ 13
----------------------------------------
Section 1. Voting Powers............................. 13
Section 2. Meetings of Shareholders.................. 14
Section 3. Quorum; Required Vote..................... 14
i
<PAGE>
ARTICLE VII -- Contracts with Service Providers............... 15
--------------------------------
Section 1. Investment Adviser........................ 15
Section 2. Principal Underwriter..................... 15
Section 3. Transfer Agency, Shareholder Services,
and Administration Agreements............. 15
Section 4. Custodian................................. 15
Section 5. Parties to Contracts with Service
Providers................................. 16
ARTICLE VIII -- Expenses of the Trust and Series.............. 16
--------------------------------
ARTICLE IX -- Limitation of Liability and Indemnification..... 17
-------------------------------------------
Section 1. Limitation of Liability................... 17
Section 2. Indemnification........................... 17
Section 3. Indemnification of Shareholders........... 20
ARTICLE X -- Miscellaneous.................................... 20
-------------
Section 1. Trust Not a Partnership................... 20
Section 2. Trustee Action; Expert Advice; No Bond or
Surety.................................... 20
Section 3. Record Dates.............................. 20
Section 4. Termination of the Trust.................. 21
Section 5. Reorganization............................ 22
Section 6. Trust Instrument.......................... 22
Section 7. Applicable Law............................ 23
Section 8. Amendments................................ 22
Section 9. Fiscal Year............................... 23
Section 10. Severability.............................. 23
ii
<PAGE>
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
TRUST INSTRUMENT
This TRUST INSTRUMENT is made on September 9, 1994, and amended on
June 9, 1995, by the Trustees, to establish a business trust for the investment
and reinvestment of funds contributed to the Trust by investors. The Trustees
declare that all money and property contributed to the Trust shall be held and
managed in trust pursuant to this Trust Instrument. The name of the Trust
created by this Trust Instrument is Managed Accounts Services Portfolio Trust.
ARTICLE I
---------
DEFINITIONS
-----------
Unless otherwise provided or required by the context:
(a) "By-laws" means the By-laws of the Trust adopted by the Trustees,
as amended from time to time;
(b) "Class" means the class of Shares of a Series established pursuant
to Article IV;
(c) "Commission," "Interested Person," and "Principal Underwriter"
have the meanings provided in the 1940 Act;
(d) "Covered Person" means a person so defined in Article IX, Section
2;
(e) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time;
(f) "Majority Shareholder Vote" means "the vote of a majority of the
outstanding voting securities" as defined in the 1940 Act;
(g) "Net Asset Value" means the net asset value of each Series of the
Trust, determined as provided in Article V, Section 3;
(h) "Outstanding Shares" means Shares shown on the books of the Trust
or its transfer agent as then issued and outstanding, but
<PAGE>
does not include Shares which have been repurchased or redeemed by the Trust;
(i) "Series" means a series of Shares established pursuant to Article
IV;
(j) "Shareholder" means a record owner of Outstanding Shares;
(k) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest of each Series or Class is divided
from time to time (including whole Shares and fractions of Shares);
(l) "Trust" means Managed Accounts Services Portfolio Trust
established hereby, and reference to the Trust, when applicable to one or more
Series, refers to that Series;
(m) "Trustees" means the persons who have signed this Trust
Instrument, so long as they shall continue in office in accordance with the
terms hereof, and all other persons who may from time to time be duly qualified
and serving as Trustees in accordance with Article II, in all cases in their
capacities as Trustees hereunder;
(n) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the Trust or any Series
or the Trustees on behalf of the Trust or any Series;
(o) The "1940 Act" means the Investment Company Act of 1940, as
amended from time to time.
ARTICLE II
----------
TRUSTEES
--------
Section 1. Management of the Trust. The business and affairs of the
-----------------------
Trust shall be managed by or under the direction of the Trustees, and they shall
have all powers necessary or desirable to carry out that responsibility. The
Trustees may execute all instruments and take all action they deem necessary or
desirable to promote the interests of the Trust. Any determination made by the
Trustees in good faith as to what is in the interests of the Trust shall be
conclusive.
Section 2. Initial Trustees; Number and Election of Trustees. The
-------------------------------------------------
initial Trustees shall be the persons initially signing this Trust Instrument.
The number of Trustees (other than the initial Trustees) shall be fixed from
time to time by a majority of the Trustees; provided, that there shall be at
least two (2) Trustees. The Shareholders shall elect the Trustees (other than
the initial Trustees) on such dates as the Trustees may fix from time to time.
- 2 -
<PAGE>
Section 3. Term of Office. Each Trustee shall hold office for life
--------------
or until his or her successor is elected or the Trust terminates; except that
(a) any Trustee may resign by delivering to the other Trustees or to any Trust
officer a written resignation effective upon such delivery or a later date
specified therein; (b) any Trustee may be removed with or without cause at any
time by a written instrument signed by at least two-thirds of the other
Trustees, specifying the effective date of removal; (c) any Trustee who requests
to be retired, or who has become physically or mentally incapacitated or is
otherwise unable to serve, may be retired by a written instrument signed by a
majority of the other Trustees, specifying the effective date of retirement; and
(d) any Trustee may be removed at any meeting of the Shareholders by a vote of
at least two-thirds of the Outstanding Shares.
Section 4. Vacancies; Appointment of Trustees. Whenever a vacancy
----------------------------------
shall exist in the Board of Trustees, regardless of the reason for such vacancy,
the remaining Trustees shall appoint any person as they determine in their sole
discretion to fill that vacancy, consistent with the limitations under the 1940
Act. Such appointment shall be made by a written instrument signed by a
majority of the Trustees or by a resolution of the Trustees, duly adopted and
recorded in the records of the Trust, specifying the effective date of the
appointment. The Trustees may appoint a new Trustee as provided above in
anticipation of a vacancy expected to occur because of the retirement,
resignation, or removal of a Trustee, or an increase in number of Trustees,
provided that such appointment shall become effective only at or after the
expected vacancy occurs. As soon as any such Trustee has accepted his or her
appointment in writing, the trust estate shall vest in the new Trustee, together
with the continuing Trustees, without any further act or conveyance, and he or
she shall be deemed a Trustee hereunder. The power of appointment is subject to
Section 16(a) of the 1940 Act.
Section 5. Temporary Vacancy or Absence. Whenever a vacancy in the
----------------------------
Board of Trustees shall occur, until such vacancy is filled, or while any
Trustee is absent from his or her domicile (unless that Trustee has made
arrangements to be informed about, and to participate in, the affairs of the
Trust during such absence), or is physically or mentally incapacitated, the
remaining Trustees shall have all the powers hereunder and their certificate as
to such vacancy, absence, or incapacity shall be conclusive. Any Trustee may,
by power of attorney, delegate his or her powers as Trustee for a period not
exceeding six (6) months at any one time to any other Trustee or Trustees.
Section 6. Chairman. The Trustees shall appoint one of their number
--------
to be Chairman of the Board of Trustees. The Chairman shall preside at all
meetings of the Trustees, shall be responsible for the execution of policies
established by the Trustees and the
- 3 -
<PAGE>
administration of the Trust, and may be the chief executive, financial and/or
accounting officer of the Trust.
Section 7. Action by the Trustees. The Trustees shall act by
----------------------
majority vote at a meeting duly called (including at a telephonic meeting,
unless the 1940 Act requires that a particular action be taken only at a meeting
of Trustees in person) at which a quorum is present or by written consent of a
majority of Trustees (or such greater number as may be required by applicable
law) without a meeting. A majority of the Trustees shall constitute a quorum at
any meeting. Meetings of the Trustees may be called orally or in writing by the
Chairman of the Board of Trustees or by any two other Trustees. Notice of the
time, date and place of all Trustees meetings shall be given to each Trustee by
telephone, facsimile or other electronic mechanism sent to his or her home or
business address at least twenty-four hours in advance of the meeting or by
written notice mailed to his or her home or business address at least seventy-
two hours in advance of the meeting. Notice need not be given to any Trustee
who attends the meeting without objecting to the lack of notice or who signs a
waiver of notice either before or after the meeting. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
Trustee or Trustees authority to approve particular matters or take particular
actions on behalf of the Trust. Any written consent or waiver may be provided
and delivered to the Trust by facsimile or other similar electronic mechanism.
Section 8. Ownership of Trust Property. The Trust Property of the
---------------------------
Trust and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. All of the Trust Property and legal title thereto
shall at all times be considered as vested in the Trustees on behalf of the
Trust, except that the Trustees may cause legal title to any Trust Property to
be held by or in the name of the Trust, or in the name of any person as nominee.
No Shareholder shall be deemed to have a severable ownership in any individual
asset of the Trust or of any Series or any right of partition or possession
thereof, but each Shareholder shall have, as provided in Article IV, a
proportionate undivided beneficial interest in the Trust or Series represented
by Shares.
Section 9. Effect of Trustees Not Serving. The death, resignation,
------------------------------
retirement, removal, incapacity, or inability or refusal to serve of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Trust Instrument.
Section 10. Trustees, etc. as Shareholders. Subject to any
------------------------------
restrictions in the By-laws, any Trustee, officer, agent or independent
contractor of the Trust may acquire, own and dispose of Shares to the same
extent as any other Shareholder; the Trustees
- 4 -
<PAGE>
may issue and sell Shares to and buy Shares from any such person or any firm or
company in which such person is interested, subject only to any general
limitations herein.
ARTICLE III
-----------
POWERS OF THE TRUSTEES
----------------------
Section 1. Powers. The Trustees in all instances shall act as
------
principals, free of the control of the Shareholders. The Trustees shall have
full power and authority to take or refrain from taking any action and to
execute any contracts and instruments that they may consider necessary or
desirable in the management of the Trust. The Trustees shall not in any way be
bound or limited by current or future laws or customs applicable to trust
investments, but shall have full power and authority to make any investments
which they, in their sole discretion, deem proper to accomplish the purposes of
the Trust. The Trustees may exercise all of their powers without recourse to
any court or other authority. Subject to any applicable limitation herein or in
the By-laws, operating documents or resolutions of the Trust, the Trustees shall
have power and authority, without limitation:
(a) To invest and reinvest cash and other property, and to hold cash
or other property uninvested, without in any event being bound or limited by any
current or future law or custom concerning investments by trustees, and to sell,
exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or
all of the Trust Property; to invest in obligations and securities of any kind,
and without regard to whether they may mature before the possible termination of
the Trust; and without limitation to invest all or any part of its cash and
other property in securities issued by a registered investment company or series
thereof, subject to the provisions of the 1940 Act;
(b) To operate as and carry on the business of a registered investment
company, and exercise all the powers necessary and proper to conduct such a
business;
(c) To adopt By-laws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent such right is not reserved to the Shareholders;
(d) To elect and remove such officers and appoint and terminate such
agents as they deem appropriate;
(e) To employ as custodian of any assets of the Trust, subject to any
provisions herein or in the By-laws, one or more banks, trust companies or
companies that are members of a national
- 5 -
<PAGE>
securities exchange, or other entities permitted by the Commission to serve as
such;
(f) To retain one or more transfer agents and Shareholder servicing
agents, or both;
(g) To provide for the distribution of Shares either through a
Principal Underwriter as provided herein or by the Trust itself, or both, or
pursuant to a distribution plan of any kind;
(h) To set record dates in the manner provided for herein or in the
By-laws;
(i) To delegate such authority as they consider desirable to any
officers of the Trust and to any agent, independent contractor, manager,
investment adviser, custodian or underwriter;
(j) To sell or exchange any or all of the assets of the Trust, subject
to Article X, Section 4;
(k) To vote or give assent, or exercise any rights of ownership, with
respect to other securities or property; and to execute and deliver powers of
attorney delegating such power to other persons;
(l) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(m) To hold any security or other property (i) in a form not
indicating any trust, whether in bearer, book entry, unregistered or other
negotiable form, or (ii) either in the Trust's or Trustees' own name or in the
name of a custodian or a nominee or nominees, subject to safeguards according to
the usual practice of business trusts or investment companies;
(n) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article IV;
(o) To the full extent permitted by Section 3804 of the Delaware Act,
to allocate assets, liabilities and expenses of the Trust to a particular Series
and liabilities and expenses to a particular Class or to apportion the same
between or among two or more Series or Classes, provided that any liabilities or
expenses incurred by a particular Series or Class shall be payable solely out of
the assets belonging to that Series or Class as provided for in Article IV,
Section 4;
(p) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or
- 6 -
<PAGE>
concern whose securities are held by the Trust; to consent to any contract,
lease, mortgage, purchase, or sale of property by such corporation or concern;
and to pay calls or subscriptions with respect to any security held in the
Trust;
(q) To compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(r) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided for;
(s) To borrow money;
(t) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum upon giving notice to such
Shareholder;
(u) To establish committees for such purposes, with such membership,
and with such responsibilities as the Trustees may consider proper, including a
committee consisting of fewer than all of the Trustees then in office, which may
act for and bind the Trustees and the Trust with respect to the institution,
prosecution, dismissal, settlement, review or investigation of any legal action,
suit or proceeding, pending or threatened;
(v) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles IV and V, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust or of the particular Series with respect to which such
Shares are issued; and
(w) To carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary or desirable to
accomplish any purpose or to further any of the foregoing powers, and to take
every other action incidental to the foregoing business or purposes, objects or
powers.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the Trustees or upon their
- 7 -
<PAGE>
order. In construing this Trust Instrument, the presumption shall be in favor
of a grant of power to the Trustees.
Section 2. Certain Transactions. Except as prohibited by applicable
--------------------
law, the Trustees may, on behalf of the Trust, buy any securities from or sell
any securities to, or lend any assets of the Trust to, any Trustee or officer of
the Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, administrator,
distributor or transfer agent for the Trust or with any Interested Person of
such person. The Trust may employ any such person or entity in which such
person is an Interested Person, as broker, legal counsel, registrar, investment
adviser, administrator, distributor, transfer agent, dividend disbursing agent,
custodian or in any other capacity upon customary terms.
ARTICLE IV
----------
SERIES; CLASSES; SHARES
-----------------------
Section 1. Establishment of Series or Class. The Trust shall consist
--------------------------------
of one or more Series. The Trustees hereby establish the Series listed in
Schedule A attached hereto and made a part hereof. Each additional Series shall
be established by the adoption of a resolution by the Trustees. The Trustees
may designate the relative rights and preferences of the Shares of each Series.
The Trustees may divide the Shares of any Series into Classes. In such case
each Class of a Series shall represent interests in the assets of that Series
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that expenses allocated to a Class may be borne
solely by such Class as determined by the Trustees and a Series or Class may
have exclusive voting rights with respect to matters affecting only that Series
or Class. The Trust shall maintain separate and distinct records for each
Series and hold and account for the assets thereof separately from the other
assets of the Trust or of any other Series. A Series may issue any number of
Shares and need not issue Shares. Each Share of a Series shall represent an
equal beneficial interest in the net assets of such Series. Each holder of
Shares of a Series shall be entitled to receive his or her pro rata share of all
distributions made with respect to such Series, provided that, if Classes of a
Series are outstanding, each holder of Shares of a Class shall be entitled to
receive his or her pro rata share of all distributions made with respect to such
Class of the Series. Upon redemption of his or her Shares, such Shareholder
shall be paid solely out of the assets and property of such Series. The
Trustees may change the name of the Trust, or any Series or Class without
shareholder approval.
Section 2. Shares. The beneficial interest in the Trust shall be
------
divided into Shares of one or more separate and distinct
- 8 -
<PAGE>
Series or Classes established by the Trustees. The number of Shares of the
Trust and of each Series and Class is unlimited and each Share shall have a par
value of $0.001 per Share. All Shares issued hereunder shall be fully paid and
nonassessable. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust. The
Trustees shall have full power and authority, in their sole discretion and
without obtaining Shareholder approval: to issue original or additional Shares
and fractional Shares at such times and on such terms and conditions as they
deem appropriate; to establish and to change in any manner Shares of any Series
or Classes with such preferences, terms of conversion, voting powers, rights and
privileges as the Trustees may determine (but the Trustees may not change
Outstanding Shares in a manner materially adverse to the Shareholders of such
Shares); to divide or combine the Shares of any Series or Classes into a greater
or lesser number; to classify or reclassify any unissued Shares of any Series or
Classes into one or more Series or Classes of Shares; to abolish any one or more
Series or Classes of Shares; to issue Shares to acquire other assets (including
assets subject to, and in connection with, the assumption of liabilities) and
businesses; and to take such other action with respect to the Shares as the
Trustees may deem desirable.
Section 3. Investment in the Trust. The Trustees shall accept
-----------------------
investments in any Series from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which that Series
is authorized to invest, valued as provided in Article V, Section 3.
Investments in a Series shall be credited to each Shareholder's account in the
form of full and fractional Shares at the Net Asset Value per Share next
determined after the investment is received or accepted in good form as may be
determined by the Trustees; provided, however, that the Trustees may, in their
sole discretion, (a) impose a sales charge upon investments in any Series or
Class, or (b) determine the Net Asset Value per Share of the initial capital
contribution. The Trustees shall have the right to refuse to accept investments
in any Series at any time without any cause or reason therefor whatsoever.
Section 4. Assets and Liabilities of Series. All consideration
--------------------------------
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof (including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be), shall be held and accounted for separately from the other assets
of the Trust and every other Series and are referred to as "assets belonging to"
that Series. The assets belonging to a Series shall belong only to that Series
for all
- 9 -
<PAGE>
purposes, and to no other Series, subject only to the rights of creditors of
that Series. Any assets, income, earnings, profits, and proceeds thereof,
funds, or payments which are not readily identifiable as belonging to any
particular Series shall be allocated by the Trustees between and among one or
more Series as the Trustees deem fair and equitable. Each such allocation shall
be conclusive and binding upon the Shareholders of all Series for all purposes,
and such assets, earnings, income, profits or funds, or payments and proceeds
thereof shall be referred to as assets belonging to that Series. The assets
belonging to a Series shall be so recorded upon the books of the Trust, and
shall be held by the Trustees in trust for the benefit of the Shareholders of
that Series. The assets belonging to a Series shall be charged with the
liabilities of that Series and all expenses, costs, charges and reserves
attributable to that Series, except that liabilities and expenses allocated
solely to a particular Class shall be borne by that Class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated and charged by the Trustees between or among any one or more of the
Series or Classes in such manner as the Trustees deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets of such Series only, and not against the
assets of the Trust generally or of any other Series. Notice of this
contractual limitation on liabilities among Series may, in the Trustees'
discretion, be set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed in the Office of the
Secretary of State of the State of Delaware pursuant to the Delaware Act, and
upon the giving of such notice in the certificate of trust, the statutory
provisions of Section 3804 of the Delaware Act relating to limitations on
liabilities among Series (and the statutory effect under Section 3804 of setting
forth such notice in the certificate of trust) shall become applicable to the
Trust and each Series. Any person extending credit to, contracting with or
having any claim against any Series may look only to the assets of that Series
to satisfy or enforce any debt, with respect to that Series. No Shareholder or
former Shareholder of any Series shall have a claim on or any right to any
assets allocated or belonging to any other Series.
Section 5. Ownership and Transfer of Shares. The Trust shall
--------------------------------
maintain a register containing the names and addresses of the Shareholders of
each Series and Class thereof, the number of Shares of each Series and Class
held by such Shareholders, and a record of all Share transfers. The register
shall be conclusive as to the
- 10 -
<PAGE>
identity of Shareholders of record and the number of Shares held by them from
time to time. The Trustees shall not be required to, but may authorize the
issuance of certificates representing Shares and adopt rules governing their
use. The Trustees may make rules governing the transfer of Shares, whether or
not represented by certificates.
Section 6. Status of Shares; Limitation of Shareholder Liability.
-----------------------------------------------------
Shares shall be deemed to be personal property giving Shareholders only the
rights provided in this Trust Instrument. Every Shareholder, by virtue of
having acquired a Share, shall be held expressly to have assented to and agreed
to be bound by the terms of this Trust Instrument and to have become a party
hereto. No Shareholder shall be personally liable for the debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing with
respect to, the Trust or any Series. Neither the Trust nor the Trustees shall
have any power to bind any Shareholder personally or to demand payment from any
Shareholder for anything, other than as agreed by the Shareholder. Shareholders
shall have the same limitation of personal liability as is extended to
shareholders of a private corporation for profit incorporated in the State of
Delaware. Every written obligation of the Trust or any Series shall contain a
statement to the effect that such obligation may only be enforced against the
assets of the Trust or such Series; however, the omission of such statement
shall not operate to bind or create personal liability for any Shareholder or
Trustee.
ARTICLE V
---------
DISTRIBUTIONS AND REDEMPTIONS
-----------------------------
Section 1. Distributions. The Trustees may declare and pay dividends
-------------
and other distributions, including dividends on Shares of a particular Series
and other distributions from the assets belonging to that Series. The amount
and payment of dividends or distributions and their form, whether they are in
cash, Shares or other Trust Property, shall be determined by the Trustees.
Dividends and other distributions may be paid pursuant to a standing resolution
adopted once or more often as the Trustees determine. All dividends and other
distributions on Shares of a particular Series shall be distributed pro rata to
the Shareholders of that Series in proportion to the number of Shares of that
Series they held on the record date established for such payment, except that
such dividends and distributions shall appropriately reflect expenses allocated
to a particular Class of such Series. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
similar plans as the Trustees deem appropriate.
- 11 -
<PAGE>
Section 2. Redemptions. Each Shareholder of a Series shall have the
-----------
right at such times as may be permitted by the Trustees to require the Series to
redeem all or any part of his or her Shares at a redemption price per Share
equal to the Net Asset Value per Share at such time as the Trustees shall have
prescribed by resolution. In the absence of such resolution, the redemption
price per Share shall be the Net Asset Value next determined after receipt by
the Series of a request for redemption in proper form less such charges as are
determined by the Trustees and described in the Trust's Registration Statement
for that Series under the Securities Act of 1933. The Trustees may specify
conditions, prices, and places of redemption, and may specify binding
requirements for the proper form or forms of requests for redemption. Payment
of the redemption price may be wholly or partly in securities or other assets at
the value of such securities or assets used in such determination of Net Asset
Value, or may be in cash. Upon redemption, Shares may be reissued from time to
time. The Trustees may require Shareholders to redeem Shares for any reason
under terms set by the Trustees, including the failure of a Shareholder to
supply a personal identification number if required to do so, or to have the
minimum investment required, or to pay when due for the purchase of Shares
issued to him or her. To the extent permitted by law, the Trustees may retain
the proceeds of any redemption of Shares required by them for payment of amounts
due and owing by a Shareholder to the Trust or any Series or Class.
Notwithstanding the foregoing, the Trustees may postpone payment of the
redemption price and may suspend the right of the Shareholders to require any
Series or Class to redeem Shares during any period of time when and to the
extent permissible under the 1940 Act.
Section 3. Determination of Net Asset Value. The Trustees shall
--------------------------------
cause the Net Asset Value of Shares of each Series or Class to be determined
from time to time in a manner consistent with applicable laws and regulations.
The Trustees may delegate the power and duty to determine Net Asset Value per
Share to one or more Trustees or officers of the Trust or to an investment
manager, administrator or investment adviser, custodian, depository or other
agent appointed for such purpose. The Net Asset Value of Shares shall be
determined separately for each Series or Class at such times as may be
prescribed by the Trustees or, in the absence of action by the Trustees, as of
the close of trading on the New York Stock Exchange on each day for all or part
of which such Exchange is open for unrestricted trading.
Section 4. Suspension of Right of Redemption. If, as referred to in
---------------------------------
Section 2 of this Article, the Trustees postpone payment of the redemption price
and suspend the right of Shareholders to redeem their Shares, such suspension
shall take effect at the time the Trustees shall specify, but not later than the
close of business on the business day next following the declaration of
suspension. Thereafter Shareholders shall have no
- 12 -
<PAGE>
right of redemption or payment until the Trustees declare the end of the
suspension. If the right of redemption is suspended, a Shareholder may either
withdraw his request for redemption or receive payment based on the Net Asset
Value per Share next determined after the suspension terminates.
Section 5. Redemptions Necessary for Qualification as Regulated
----------------------------------------------------
Investment Company. If the Trustees shall determine that direct or indirect
- ------------------
ownership of Shares of any Series has or may become concentrated in any person
to an extent which would disqualify any Series as a regulated investment company
under the Internal Revenue Code, then the Trustees shall have the power (but not
the obligation) by lot or other means they deem equitable to (a) call for
redemption by any such person of a number, or principal amount, of Shares
sufficient to maintain or bring the direct or indirect ownership of Shares into
conformity with the requirements for such qualification and (b) refuse to
transfer or issue Shares to any person whose acquisition of Shares in question
would, in the Trustees' judgment, result in such disqualification. Any such
redemption shall be effected at the redemption price and in the manner provided
in this Article. Shareholders shall upon demand disclose to the Trustees in
writing such information concerning direct and indirect ownership of Shares as
the Trustees deem necessary to comply with the requirements of any taxing
authority.
ARTICLE VI
----------
SHAREHOLDERS' VOTING POWERS AND MEETINGS
----------------------------------------
Section 1. Voting Powers. The Shareholders shall have power to vote
-------------
only with respect to (a) the election of Trustees as provided in Section 2 of
this Article; (b) the removal of Trustees as provided in Article II, Section
3(d); (c) any investment advisory or management contract as provided in Article
VII, Section 1; (d) any termination of the Trust as provided in Article X,
Section 4; (e) the amendment of this Trust Instrument to the extent and as
provided in Article X, Section 8; and (f) such additional matters relating to
the Trust as may be required or authorized by law, this Trust Instrument, or the
By-laws or any registration of the Trust with the Commission or any State, or as
the Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares
shall be voted by individual Series or Class, except (a) when required by the
1940 Act, Shares shall be voted in the aggregate and not by individual Series or
Class, and (b) when the Trustees have determined that the matter affects the
interests of more than one Series or Class, then the Shareholders of all such
Series or Classes shall be entitled to vote thereon. Each whole Share shall be
entitled to one vote as to any matter on which it is
- 13 -
<PAGE>
entitled to vote, and each fractional Share shall be entitled to a proportionate
fractional vote. There shall be no cumulative voting in the election of
Trustees. Shares may be voted in person or by proxy or in any manner provided
for in the By-laws. The By-laws may provide that proxies may be given by any
electronic or telecommunications device or in any other manner, but if a
proposal by anyone other than the officers or Trustees is submitted to a vote of
the Shareholders of any Series or Class, or if there is a proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees, Shares may be voted only in person or by written proxy. Until Shares
of a Series are issued, as to that Series the Trustees may exercise all rights
of Shareholders and may take any action required or permitted to be taken by
Shareholders by law, this Trust Instrument or the By-laws.
Section 2. Meetings of Shareholders. The first Shareholders' meeting
------------------------
shall be held to elect Trustees at such time and place as the Trustees
designate. Annual meetings shall not be required. Special meetings of the
Shareholders of any Series or Class may be called by the Trustees and shall be
called by the Trustees upon the written request of Shareholders owning at least
ten percent of the Outstanding Shares of such Series or Class entitled to vote.
Special meetings of Shareholders shall be held, notice of such meetings shall be
delivered and waiver of notice shall occur according to the provisions of the
Trust's By-laws. Any action that may be taken at a meeting of Shareholders may
be taken without a meeting according to the procedures set forth in the By-laws.
Section 3. Quorum; Required Vote. One-third of the Outstanding
---------------------
Shares of each Series or Class, or one-third of the Outstanding Shares of the
Trust, entitled to vote in person or by proxy shall be a quorum for the
transaction of business at a Shareholders' meeting with respect to such Series
or Class, or with respect to the entire Trust, respectively. Any lesser number
shall be sufficient for adjournments. Any adjourned session of a Shareholders'
meeting may be held within a reasonable time without further notice. Except
when a larger vote is required by law, this Trust Instrument or the By-laws, a
majority of the Outstanding Shares voted in person or by proxy shall decide any
matters to be voted upon with respect to the entire Trust and a plurality of
such Outstanding Shares shall elect a Trustee; provided, that if this Trust
Instrument or applicable law permits or requires that Shares be voted on any
matter by individual Series or Classes, then a majority of the Outstanding
Shares of that Series or Class (or, if required or permitted by law, regulation,
Commission order, or no-action letter, a Majority Shareholder Vote of that
Series or Class) voted in person or by proxy voted on the matter shall decide
that matter insofar as that Series or Class is concerned. Shareholders may act
as to the Trust or any Series or Class by the written consent of a majority (or
such greater amount as may be required by applicable law) of the Outstanding
Shares of the Trust or of such Series or Class, as the case may be.
- 14 -
<PAGE>
ARTICLE VII
-----------
CONTRACTS WITH SERVICE PROVIDERS
--------------------------------
Section 1. Investment Adviser. Subject to a Majority Shareholder
------------------
Vote, the Trustees may enter into one or more investment advisory contracts on
behalf of the Trust or any Series, providing for investment advisory services,
statistical and research facilities and services, and other facilities and
services to be furnished to the Trust or Series on terms and conditions
acceptable to the Trustees. Any such contract may provide for the investment
adviser to effect purchases, sales or exchanges of portfolio securities or other
Trust Property on behalf of the Trustees or may authorize any officer or agent
of the Trust to effect such purchases, sales or exchanges pursuant to
recommendations of the investment adviser. The Trustees may authorize the
investment adviser to employ one or more sub-advisers or servicing agents.
Section 2. Principal Underwriter. The Trustees may enter into
---------------------
contracts on behalf of the Trust or any Series or Class, providing for the
distribution and sale of Shares by the other party, either directly or as sales
agent, on terms and conditions acceptable to the Trustees. The Trustees may
adopt a plan or plans of distribution with respect to Shares of any Series or
Class and enter into any related agreements, whereby the Series or Class
finances directly or indirectly any activity that is primarily intended to
result in sales of its Shares, subject to the requirements of Section 12 of the
1940 Act, Rule 12b-1 thereunder, and other applicable rules and regulations.
Section 3. Transfer Agency, Shareholder Services, and Administration
---------------------------------------------------------
Agreements. The Trustees, on behalf of the Trust or any Series or Class, may
- ----------
enter into transfer agency agreements, Shareholder service agreements, and
administration and management agreements with any party or parties on terms and
conditions acceptable to the Trustees.
Section 4. Custodian. The Trustees shall at all times place and
---------
maintain the securities and similar investments of the Trust and of each Series
with a custodian meeting the requirements of Section 17(f) of the 1940 Act and
the rules thereunder. The Trustees, on behalf of the Trust or any Series, may
enter into an agreement with a custodian on terms and conditions acceptable to
the Trustees, providing for the custodian, among other things, to (a) hold the
securities owned by the Trust or any Series and deliver the same upon written
order or oral order confirmed in writing, (b) to receive and receipt for any
moneys due to the Trust or any Series and deposit the same in its own banking
department or
- 15 -
<PAGE>
elsewhere, (c) to disburse such funds upon orders or vouchers, and (d) to employ
one or more sub-custodians.
Section 5. Parties to Contracts with Service Providers. The Trustees
-------------------------------------------
may enter into any contract referred to in this Article with any entity,
although one or more of the Trustees or officers of the Trust may be an officer,
director, trustee, partner, shareholder, or member of such entity, and no such
contract shall be invalidated or rendered void or voidable because of such
relationship. No person having such a relationship shall be disqualified from
voting on or executing a contract in his or her capacity as Trustee and/or
Shareholder, or be liable merely by reason of such relationship for any loss or
expense to the Trust with respect to such a contract or accountable for any
profit realized directly or indirectly therefrom; provided, that the contract
was reasonable and fair and not inconsistent with this Trust Instrument or the
By-laws.
Any contract referred to in Sections 1 and 2 of this Article shall be
consistent with and subject to the applicable requirements of Section 15 of the
1940 Act and the rules and orders thereunder with respect to its continuance in
effect, its termination, and the method of authorization and approval of such
contract or renewal. No amendment to a contract referred to in Section 1 of
this Article shall be effective unless assented to in a manner consistent with
the requirements of Section 15 of the 1940 Act, and the rules and orders
thereunder.
ARTICLE VIII
------------
EXPENSES OF THE TRUST AND SERIES
--------------------------------
Subject to Article IV, Section 4, the Trust or a particular Series
shall pay, or shall reimburse the Trustees from the Trust estate or the assets
belonging to the particular Series, for their expenses and disbursements,
including, but not limited to, interest charges, taxes, brokerage fees and
commissions; expenses of issue, repurchase and redemption of Shares; insurance
premiums; applicable fees, interest charges and expenses of third parties,
including the Trust's investment advisers, managers, administrators,
distributors, custodians, transfer agents and fund accountants; fees of pricing,
interest, dividend, credit and other reporting services; costs of membership in
trade associations; telecommunications expenses; funds transmission expenses;
auditing, legal and compliance expenses; costs of forming the Trust and its
Series and maintaining its existence; costs of preparing and printing the
prospectuses of the Trust and each Series, statements of additional information
and reports for Shareholders and delivering them to Shareholders; expenses of
meetings of Shareholders and proxy solicitations therefor (unless otherwise
agreed to by another party); costs of maintaining books and
- 16 -
<PAGE>
accounts; costs of reproduction, stationery and supplies; fees and expenses of
the Trustees; compensation of the Trust's officers and employees and costs of
other personnel performing services for the Trust or any Series; costs of
Trustee meetings; Commission registration fees and related expenses; state or
foreign securities laws registration fees and related expenses; and for such
non-recurring items as may arise, including litigation to which the Trust or a
Series (or a Trustee or officer of the Trust acting as such) is a party, and for
all losses and liabilities by them incurred in administering the Trust. The
Trustees shall have a lien on the assets belonging to the appropriate Series, or
in the case of an expense allocable to more than one Series, on the assets of
each such Series, prior to any rights or interests of the Shareholders thereto,
for the reimbursement to them of such expenses, disbursements, losses and
liabilities.
ARTICLE IX
----------
LIMITATION OF LIABILITY AND INDEMNIFICATION
-------------------------------------------
Section 1. Limitation of Liability. All persons contracting with or
-----------------------
having any claim against the Trust or a particular Series shall look only to the
assets of the Trust or such Series for payment under such contract or claim; and
neither the Trustees nor any of the Trust's officers, employees or agents,
whether past, present or future, shall be personally liable therefor. Every
written instrument or obligation on behalf of the Trust or any Series shall
contain a statement to the foregoing effect, but the absence of such statement
shall not operate to make any Trustee or officer of the Trust liable thereunder.
Provided they have exercised reasonable care and have acted under the reasonable
belief that their actions are in the best interest of the Trust, the Trustees
and officers of the Trust shall not be responsible or liable for any act or
omission or for neglect or wrongdoing of them or any officer, agent, employee,
investment adviser or independent contractor of the Trust, but nothing contained
in this Trust Instrument or in the Delaware Act shall protect any Trustee or
officer of the Trust against liability to the Trust or to Shareholders to which
he or she would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
Section 2. Indemnification. (a) Subject to the exceptions and
---------------
limitations contained in subsections (b) and (c) below:
(i) every person who is, or has been, a Trustee or an officer,
employee, investment manager and administrator, director, officer of
employer of an investment manager and administrator, investment
adviser or agent of the Trust ("Covered Person") shall be indemnified
by the
- 17 -
<PAGE>
Trust or the appropriate Series to the fullest extent permitted by law
against liability and against all expenses reasonably incurred or paid
by him or her in connection with any claim, action, suit or proceeding
in which he or she becomes involved as a party or otherwise by virtue
of his or her being or having been a Covered Person and against
amounts paid or incurred by him or her in the settlement thereof;
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal or other, including appeals), actual or threatened,
and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person who
is, or has been, an investment manager and administrator, director, officer of
employer of an investment manager and administrator, an investment adviser or an
agent of the Trust and:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, negligence
or reckless disregard of the duties involved in the conduct of his or
her office, or (B) not to have acted in good faith in the reasonable
belief that his or her action was in the best interest of the Trust;
or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, negligence or reckless disregard of the duties
involved in the conduct of his or her office; (A) by the court or
other body approving the settlement; (B) by the vote of at least a
majority of those Trustees who are neither Interested Persons of the
Trust nor are parties to the proceeding based upon a review of readily
available facts (as opposed to a full trial-type inquiry); or (C) by
written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry).
(c) No indemnification shall be provided hereunder to a Covered Person who
is, or has been, a Trustee or an officer or employee of the Trust, and
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable
- 18 -
<PAGE>
to the Trust or its Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his or her office, or (B) not to have acted in good
faith in the reasonable belief that his or her action was in the best
interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office; (A) by the court
or other body approving the settlement; (B) by the vote of at least a
majority of those Trustees who are neither Interested Persons of the
Trust nor are parties to the proceeding based upon a review of readily
available facts (as opposed to a full trial-type inquiry); or (C) by
written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry).
(d) The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not be exclusive of
or affect any other rights to which any Covered Person may now or hereafter be
entitled, and shall inure to the benefit of the heirs, executors and
administrators of a Covered Person.
(e) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by him or her to the Trust or
applicable Series if it is ultimately determined that he or she is not entitled
to indemnification under this Section; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the proceeding, or independent legal counsel
in a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section.
(f) Any repeal or modification of this Article IX by the Shareholders of
the Trust, or adoption or modification of any other provision of the Trust
Instrument or By-laws inconsistent with this Article, shall be prospective only,
to the extent that such repeal
- 19 -
<PAGE>
or modification would, if applied retrospectively, adversely affect any
limitation on the liability of any Covered Person or indemnification available
to any Covered Person with respect to any act or omission which occurred prior
to such repeal, modification or adoption.
Section 3. Indemnification of Shareholders. If any Shareholder or former
-------------------------------
Shareholder of any Series shall be held personally liable solely by reason of
his or her being or having been a Shareholder and not because of his or her acts
or omissions or for some other reason, the Shareholder or former Shareholder (or
his or her heirs, executors, administrators or other legal representatives or in
the case of any entity, its general successor) shall be entitled out of the
assets belonging to the applicable Series to be held harmless from and
indemnified against all loss and expense arising from such liability. The
Trust, on behalf of the affected Series, shall, upon request by such
Shareholder, assume the defense of any claim made against such Shareholder for
any act or obligation of the Series and satisfy any judgment thereon from the
assets of the Series.
ARTICLE X
---------
MISCELLANEOUS
-------------
Section 1. Trust Not a Partnership. This Trust Instrument creates a trust
-----------------------
and not a partnership. No Trustee shall have any power to bind personally
either the Trust's officers or any Shareholder.
Section 2. Trustee Action; Expert Advice; No Bond or Surety. The exercise
------------------------------------------------
by the Trustees of their powers and discretion hereunder in good faith and with
reasonable care under the circumstances then prevailing shall be binding upon
everyone interested. Subject to the provisions of Article IX, the Trustees
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Trust Instrument, and subject to the provisions of Article
IX, shall not be liable for any act or omission in accordance with such advice
or for failing to follow such advice. The Trustees shall not be required to
give any bond as such, nor any surety if a bond is obtained.
Section 3. Record Dates. The Trustees may fix in advance a date up to
------------
ninety (90) days before the date of any Shareholders' meeting, or the date for
the payment of any dividends or other distributions, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of such dividend or other distribution,
- 20 -
<PAGE>
or to receive any such allotment of rights, or to exercise such rights in
respect of any such change, conversion or exchange of Shares. Record dates for
adjourned meetings of Shareholders shall be set according to the Trust's By-
laws.
Section 4. Termination of the Trust. (a) This Trust shall have perpetual
------------------------
existence. Subject to a Majority Shareholder Vote of the Trust or of each
Series to be affected, the Trustees may
(i) sell and convey all or substantially all of the assets of the
Trust or any affected Series to another Series or to another entity
which is an open-end investment company as defined in the 1940 Act, or
is a series thereof, for adequate consideration, which may include the
assumption of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Trust or any affected
Series, and which may include shares of or interests in such Series,
entity, or series thereof; or
(ii) at any time sell and convert into money all or substantially all
of the assets of the Trust or any affected Series.
Upon making reasonable provision for the payment of all known liabilities of the
Trust or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the Shareholders of the Trust or any affected
Series; however, the payment to any particular Class of such Series may be
reduced by any fees, expenses or charges allocated to that Class.
(b) The Trustees may take any of the actions specified in subsection (a)
(i) and (ii) above without obtaining a Majority Shareholder Vote of the Trust or
any Series if a majority of the Trustees determines that the continuation of the
Trust or Series is not in the best interests of the Trust, such Series, or their
respective Shareholders as a result of factors or events adversely affecting the
ability of the Trust or such Series to conduct its business and operations in an
economically viable manner. Such factors and events may include the inability
of the Trust or a Series to maintain its assets at an appropriate size, changes
in laws or regulations governing the Trust or the Series or affecting assets of
the type in which the Trust or Series invests, or economic developments or
trends having a significant adverse impact on the business or operations of the
Trust or such Series.
(c) Upon completion of the distribution of the remaining proceeds or assets
pursuant to subsection (a), the Trust or affected Series shall terminate and the
Trustees and the Trust shall be discharged of any and all further liabilities
and duties hereunder with respect thereto and the right, title and interest of
- 21 -
<PAGE>
all parties therein shall be canceled and discharged. Upon termination of the
Trust, following completion of winding up of its business, the Trustees shall
cause a certificate of cancellation of the Trust's certificate of trust to be
filed in accordance with the Delaware Act, which certificate of cancellation may
be signed by any one Trustee.
Section 5. Reorganization. Notwithstanding anything else herein, to
--------------
change the Trust's form of organization the Trustees may, without Shareholder
approval, (a) cause the Trust to merge or consolidate with or into one or more
entities, if the surviving or resulting entity is the Trust or another open-end
management investment company under the 1940 Act, or a series thereof, that will
succeed to or assume the Trust's registration under the 1940 Act, or (b) cause
the Trust to incorporate under the laws of Delaware. Any agreement of merger or
consolidation or certificate of merger may be signed by a majority of Trustees
and facsimile signatures conveyed by electronic or telecommunication means shall
be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of the
Delaware Act, an agreement of merger or consolidation approved by the Trustees
in accordance with this Section 5 may effect any amendment to the Trust
Instrument or effect the adoption of a new trust instrument of the Trust if it
is the surviving or resulting trust in the merger or consolidation.
Section 6. Trust Instrument. The original or a copy of this Trust
----------------
Instrument and of each amendment hereto or Trust Instrument supplemental shall
be kept at the office of the Trust where it may be inspected by any Shareholder.
Anyone dealing with the Trust may rely on a certificate by a Trustee or an
officer of the Trust as to the authenticity of the Trust Instrument or any such
amendments or supplements and as to any matters in connection with the Trust.
The masculine gender herein shall include the feminine and neuter genders.
Headings herein are for convenience only and shall not affect the construction
of this Trust Instrument. This Trust Instrument may be executed in any number of
counterparts, each of which shall be deemed an original.
Section 7. Applicable Law. This Trust Instrument and the Trust created
--------------
hereunder are governed by and construed and administered according to the
Delaware Act and the applicable laws of the State of Delaware; provided,
however, that there shall not be applicable to the Trust, the Trustees or this
Trust Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware
Code, or (b) any provisions of the laws (statutory or common) of the State of
Delaware (other than the Delaware Act) pertaining to trusts which relate to or
regulate (i) the filing with any court or governmental body or agency of trustee
accounts or schedules of trustee fees and charges, (ii) affirmative
requirements to post bonds for trustees, officers, agents or employees of a
trust,
- 22 -
<PAGE>
(iii) the necessity for obtaining court or other governmental approval
concerning the acquisition, holding or disposition of real or personal property,
(iv) fees or other sums payable to trustees, officers, agents or employees of a
trust, (v) the allocation of receipts and expenditures to income or principal,
(vi) restrictions or limitations on the permissible nature, amount or
concentration of trust investments or requirements relating to the titling,
storage or other manner of holding of trust assets, or (vii) the establishment
of fiduciary or other standards of responsibilities or limitations on the acts
or powers of trustees, which are inconsistent with the limitations or
liabilities or authorities and powers of the Trustees set forth or referenced in
this Trust Instrument. The Trust shall be of the type commonly called a
Delaware business trust, and, without limiting the provisions hereof, the Trust
may exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
Section 8. Amendments. The Trustees may, without any Shareholder vote,
----------
amend or otherwise supplement this Trust Instrument by making an amendment, a
Trust Instrument supplemental hereto or an amended and restated trust
instrument; provided, that Shareholders shall have the right to vote on any
amendment (a) which would affect the voting rights of Shareholders granted in
Article VI, Section 1, (b) to this Section 8, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s) filed with the
Commission, and (d) submitted to them by the Trustees in their discretion. Any
amendment submitted to Shareholders which the Trustees determine would affect
the Shareholders of any Series shall be authorized by vote of the Shareholders
of such Series and no vote shall be required of Shareholders of a Series not
affected. Notwithstanding anything else herein, any amendment to Article IX
which would have the effect of reducing the indemnification and other rights
provided thereby to Trustees, officers, employees, and agents of the Trust or to
Shareholders or former Shareholders, and any repeal or amendment of this
sentence shall each require the affirmative vote of the holders of two-thirds of
the Outstanding Shares of the Trust entitled to vote thereon.
Section 9. Fiscal Year. The fiscal year of the Trust shall end on a
-----------
specified date as set forth in the By-laws. The Trustees may change the fiscal
year of the Trust without Shareholder approval.
Section 10. Severability. The provisions of this Trust Instrument are
------------
severable. If the Trustees determine, with the
- 23 -
<PAGE>
advice of counsel, that any provision hereof conflicts with the 1940 Act, the
regulated investment company provisions of the Internal Revenue Code or with
other applicable laws and regulations, the conflicting provision shall be deemed
never to have constituted a part of this Trust Instrument; provided, however,
that such determination shall not affect any of the remaining provisions of this
Trust Instrument or render invalid or improper any action taken or omitted prior
to such determination. If any provision hereof shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach
- 24 -
<PAGE>
only to such provision only in such jurisdiction and shall not affect any other
provision of this Trust Instrument.
IN WITNESS WHEREOF, the undersigned, being the initial Trustees, have
executed this Trust Instrument as of the date first above written.
------------------------------
Peter Kennedy, as
Trustee and not individually
Address: 1200 Harbor Boulevard
Weehawken, NJ 07087
STATE OF NEW JERSEY ss
CITY OF WEEHAWKEN
Before me this ____ day of _____________. 1995, personally appeared
the above-named Peter Kennedy, known to me to be the person who executed the
foregoing instrument and who acknowledged that he executed the same.
__________________________
Notary Public
My commission expires: ____________________
______________________________
Gregory K. Todd, as
Trustee and not individually
Address: 1285 Avenue of the Americas
New York, New York 10019
STATE OF NEW YORK ss
CITY OF NEW YORK
Before me this ____ day of __________, 1995, personally appeared the
above-named Gregory K. Todd, known to me to be the person who executed the
foregoing instrument and who acknowledged that he executed the same.
__________________________
Notary Public
My commission expires: ____________________
- 25 -
<PAGE>
EXHIBIT 99.2(b)
MANAGED ACCOUNTS SERVICES
PORTFOLIO TRUST
BY-LAWS
September 9, 1994
(Revised June 9, 1995)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
PRINCIPAL OFFICE AND SEAL............................................ 1
Section 1. Principal Office.................................... 1
Section 2. Seal................................................ 1
ARTICLE II
MEETINGS OF TRUSTEES................................................. 1
Section 1. Action by Trustees.................................. 1
Section 2. Compensation of Trustees............................ 1
Section 3. Retirement of Trustees.............................. 1
ARTICLE III
COMMITTEES........................................................... 2
Section 1. Establishment....................................... 2
Section 2. Proceedings; Quorum; Action......................... 2
Section 3. Compensation of Committee Members................... 2
ARTICLE IV
OFFICERS............................................................. 2
Section 1. General............................................. 2
Section 2. Election, Tenure and Qualifications of Officers..... 2
Section 3. Vacancies and Newly Created Offices................. 3
Section 4. Removal and Resignation............................. 3
Section 5. Chairman............................................ 3
Section 6. President........................................... 3
Section 7. Vice President(s)................................... 3
Section 8. Treasurer and Assistant Treasurer(s)................ 4
Section 9. Secretary and Assistant Secretaries................. 4
Section 10. Compensation of Officers............................ 4
Section 11. Surety Bond......................................... 4
ARTICLE V
MEETINGS OF SHAREHOLDERS............................................. 5
Section 1. No Annual Meetings.................................. 5
Section 2. Special Meetings.................................... 5
Section 3. Notice of Meetings; Waiver.......................... 5
Section 4. Adjourned Meetings.................................. 5
Section 5. Validity of Proxies................................. 6
Section 6. Record Date......................................... 6
Section 7. Action Without a Meeting............................ 7
ARTICLE VI
SHARES OF BENEFICIAL INTEREST........................................ 7
Section 1. No Share Certificates............................... 7
Section 2. Transfer of Shares.................................. 7
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C>
ARTICLE VII
CUSTODY OF SECURITIES................................................ 7
Section 1. Employment of a Custodian........................... 7
Section 2. Termination of Custodian Agreement.................. 7
Section 3. Other Arrangements.................................. 8
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT........................................... 8
Section 1. Fiscal Year......................................... 8
Section 2. Accountant.......................................... 8
ARTICLE IX
AMENDMENTS........................................................... 8
Section 1. General............................................. 8
Section 2. By Shareholders Only................................ 8
ARTICLE X
NET ASSET VALUE...................................................... 8
ARTICLE XI
INVESTMENTS.......................................................... 9
Section 1. Investment Objectives, Policies and Restrictions 9
Section 2. Amendment of Investment Objectives, Policies
and Restrictions.................................... 9
ARTICLE XII
MISCELLANEOUS........................................................ 10
Section 1. Inspection of Books................................. 10
Section 2. Severability........................................ 10
Section 3. Headings............................................ 10
</TABLE>
- ii -
<PAGE>
BY-LAWS
OF
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
These By-laws of Managed Accounts Services Portfolio Trust (the "Trust"), a
Delaware business trust, are subject to the Trust Instrument of the Trust dated
as of September 9, 1994, as from time to time amended, supplemented or restated
(the "Trust Instrument"). Capitalized terms used herein have the same meanings
as in the Trust Instrument.
ARTICLE I
---------
PRINCIPAL OFFICE AND SEAL
-------------------------
Section 1. Principal Office. The principal office of the Trust shall be
- --------- ----------------
located in New York, New York, or such other location as the Trustees determine.
The Trust may establish and maintain other offices and places of business as the
Trustees determine.
Section 2. Seal. The Trustees may adopt a seal for the Trust in such form and
- --------- ----
with such inscription as the Trustees determine. Any Trustee or officer of the
Trust shall have authority to affix the seal to any document.
ARTICLE II
----------
MEETINGS OF TRUSTEES
--------------------
Section 1. Action by Trustees. Trustees may take actions at meetings held at
- --------- ------------------
such places and times as the Trustees may determine, or without meetings, all as
provided in Article II, Section 7, of the Trust Instrument.
Section 2. Compensation of Trustees. Each Trustee who is neither an employee
- --------- ------------------------
of an investment adviser of the Trust or any Series nor an employee of an entity
affiliated with the investment adviser may receive such compensation from the
Trust for services and reimbursement for expenses as the Trustees may determine.
Section 3. Retirement of Trustees. Each Trustee who has attained the age of
- --------- ----------------------
seventy-two (72) years as of December 31 of any year shall retire from service
as a Trustee on such date unless that retirement would cause the Trust to be
required to call a meeting of Shareholders to fill the resulting vacancy on the
Board of Trustees. Notwithstanding anything in this Section, a Trustee may
retire at any time as provided for in the Trust Instrument.
<PAGE>
ARTICLE III
-----------
COMMITTEES
----------
Section 1. Establishment. The Trustees may designate one or more committees of
- --------- -------------
the Trustees, which may include an Executive Committee, a Nominating Committee,
and an Audit Committee. The Trustees shall determine the number of members of
each committee and its powers and shall appoint its members and its chair. Each
committee member shall serve at the pleasure of the Trustees. The Trustees may
abolish any committee at any time. Each committee shall maintain records of its
meetings and report its actions to the Trustees. The Trustees may rescind any
action of any committee, but such rescission shall not have retroactive effect.
The Trustees may delegate to any committee any of its powers, subject to the
limitations of applicable law.
Section 2. Proceedings; Quorum; Action. Each committee may adopt such rules
- --------- ---------------------------
governing its proceedings, quorum and manner of acting as it shall deem proper
and desirable. In the absence of such rules, a majority of any committee shall
constitute a quorum, and a committee shall act by the vote of a majority of a
quorum.
Section 3. Compensation of Committee Members. Each committee member who is not
- --------- ---------------------------------
an "interested person" of the Trust, as defined in the 1940 Act ("Disinerested
Trustees") may receive such compensation from the Trust for services and
reimbursement for expenses as the Trustees may determine.
ARTICLE IV
----------
OFFICERS
--------
Section 1. General. The officers of the Trust shall be a Chairman, a
- --------- -------
President, one or more Vice Presidents, a Treasurer, and a Secretary, and may
include one or more Assistant Treasurers or Assistant Secretaries and such other
officers ("Other Officers") as the Trustees may determine.
Section 2. Election, Tenure and Qualifications of Officers. The Trustees shall
- --------- -----------------------------------------------
elect the officers of the Trust, except those appointed as provided in Section 9
of this Article. Each officer elected by the Trustees shall hold office until
his or her successor shall have been elected and qualified or until his or her
earlier death, inability to serve, or resignation. Any person may hold one or
more offices, except that the Chairman and the Secretary may not be the same
individual. A person who holds more than one office in the Trust may not act in
more than one capacity to execute, acknowledge, or verify an instrument required
by law to be executed, acknowledged, or verified by more than one officer. No
officer other than the Chairman need be a Trustee or Shareholder.
- 2 -
<PAGE>
Section 3. Vacancies and Newly Created Offices. Whenever a vacancy shall occur
- --------- -----------------------------------
in any office or if any new office is created, the Trustees may fill such
vacancy or new office.
Section 4. Removal and Resignation. Officers serve at the pleasure of the
- --------- -----------------------
Trustees and may be removed at any time with or without cause. The Trustees may
delegate this power to the Chairman or President with respect to any Other
Officer. Such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Any officer may resign from office at any time
by delivering a written resignation to the Trustees, Chairman, or the President.
Unless otherwise specified therein, such resignation shall take effect upon
delivery.
Section 5. Chairman. The Chairman shall be the chief executive officer of the
- --------- --------
Trust. Subject to the direction of the Trustees, the Chairman shall have
general charge, supervision and control over the Trust's business affairs and
shall be responsible for the management thereof and the execution of policies
established by the Trustees. The Chairman shall preside at any Shareholders'
meetings and at all meetings of the Trustees and shall in general exercise the
powers and perform the duties of the Chairman of the Trustees. Except as the
Trustees may otherwise order, the Chairman shall have the power to grant, issue,
execute or sign such powers of attorney, proxies, agreements or other documents.
The Chairman also shall have the power to employ attorneys, accountants and
other advisers and agents for the Trust. The Chairman shall exercise such other
powers and perform such other duties as the Trustees may assign to the Chairman.
Section 6. President. The President shall have such powers and perform such
- --------- ---------
duties as the Trustees or the Chairman may determine. At the request or in the
absence or disability of the Chairman, the President shall perform all the
duties of the President and, when so acting, shall have all the powers of the
President.
Section 7. Vice President(s). The Vice President(s) shall have such powers and
- --------- -----------------
perform such duties as the Trustees or the Chairman may determine. At the
request or in the absence or disability of the President, the Vice President
(or, if there are two or more Vice Presidents, then the senior of the Vice
Presidents present and able to act) shall perform all the duties of the
President and, when so acting, shall have all the powers of the President. The
Trustees may designate a Vice President as the principal financial officer of
the Trust or to serve one or more other functions. If a Vice President is
designated as principal financial officer of the Trust, he or she shall have
general charge of the finances and books of the Trust and shall report to the
Trustees annually regarding the financial condition of each Series as soon as
possible after the close of such Series's fiscal year. The Trustees also may
designate one of the Vice Presidents as Executive Vice President.
- 3 -
<PAGE>
Section 8. Treasurer and Assistant Treasurer(s). The Treasurer may be
- --------- ------------------------------------
designated as the principal financial officer or as the principal accounting
officer of the Trust. If designated as principal financial officer, the
Treasurer shall have general charge of the finances and books of the Trust, and
shall report to the Trustees annually regarding the financial condition of each
Series as soon as possible after the close of such Series' fiscal year. The
Treasurer shall be responsible for the delivery of all funds and securities of
the Trust to such company as the Trustees shall retain as Custodian. The
Treasurer shall furnish such reports concerning the financial condition of the
Trust as the Trustees may request. The Treasurer shall perform all acts
incidental to the office of Treasurer, subject to the Trustees' supervision, and
shall perform such additional duties as the Trustees may designate.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Trustees or the Treasurer may assign, and, in the absence of the Treasurer, may
perform all the duties of the Treasurer.
Section 9. Secretary and Assistant Secretaries. The Secretary shall record all
- --------- -----------------------------------
votes and proceedings of the meetings of Trustees and Shareholders in books to
be kept for that purpose. The Secretary shall be responsible for giving and
serving notices of the Trust. The Secretary shall have custody of any seal of
the Trust and shall be responsible for the records of the Trust, including the
Share register and such other books and documents as may be required by the
Trustees or by law. The Secretary shall perform all acts incidental to the
office of Secretary, subject to the supervision of the Trustees, and shall
perform such additional duties as the Trustees may designate.
Any Assistant Secretary may perform such duties of the Secretary as the
Trustees or the Secretary may assign, and, in the absence of the Secretary, may
perform all the duties of the Secretary.
Section 10. Compensation of Officers. Each officer may receive such
- ---------- ------------------------
compensation from the Trust for services and reimbursement for expenses as the
Trustees may determine.
Section 11. Surety Bond. The Trustees may require any officer or agent of the
- ---------- -----------
Trust to execute a bond (including, without limitation, any bond required by the
1940 Act and the rules and regulations of the Securities and Exchange Commission
("Commission")) to the Trust in such sum and with such surety or sureties as the
Trustees may determine, conditioned upon the faithful performance of his or her
duties to the Trust, including responsibility for negligence and for the
accounting of any of the Trust's property, funds or securities that may come
into his or her hands.
- 4 -
<PAGE>
ARTICLE V
---------
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. No Annual Meetings. There shall be no annual Shareholders'
- --------- ------------------
meetings, unless required by law.
Section 2. Special Meetings. The Secretary shall call a special meeting of
- --------- ----------------
Shareholders of any Series or Class whenever ordered by the Trustees.
The Secretary also shall call a special meeting of Shareholders of any
Series or Class upon the written request of Shareholders owning at least ten
percent of the Outstanding Shares of such Series or Class entitled to vote at
such meeting; provided, that (1) such request shall state the purposes of such
meeting and the matters proposed to be acted on, and (2) the Shareholders
requesting such meeting shall have paid to the Trust the reasonably estimated
cost of preparing and mailing the notice thereof, which the Secretary shall
determine and specify to such Shareholders. If the Secretary fails for more
than thirty days to call a special meeting when required to do so, the Trustees
or the Shareholders requesting such a meeting may, in the name of the Secretary,
call the meeting by giving the required notice. The Secretary shall not call a
special meeting upon the request of Shareholders of any Series or Class to
consider any matter that is substantially the same as a matter voted upon at any
special meeting of Shareholders of such Series or Class held during the
preceding twelve months, unless requested by the holders of a majority of the
Outstanding Shares of such Series or Class entitled to be voted at such meeting.
A special meeting of Shareholders of any Series or Class shall be held at
such time and place as is determined by the Trustees and stated in the notice of
that meeting.
Section 3. Notice of Meetings; Waiver. The Secretary shall call a special
- --------- --------------------------
meeting of Shareholders by giving written notice of the place, date, time, and
purposes of that meeting at least fifteen days before the date of such meeting.
The Secretary may deliver or mail, postage prepaid, the written notice of any
meeting to each Shareholder entitled to vote at such meeting. If mailed, notice
shall be deemed to be given when deposited in the United States mail directed to
the Shareholder at his or her address as it appears on the records of the Trust.
Section 4. Adjourned Meetings. A Shareholders' meeting may be adjourned one or
- --------- ------------------
more times for any reason, including the failure of a quorum to attend the
meeting. No notice of adjournment of a meeting to another time or place need be
given to Shareholders if such time and place are announced at the meeting at
which the adjournment is taken or reasonable notice is given to persons
- 5 -
<PAGE>
present at the meeting, and if the adjourned meeting is held within a reasonable
time after the date set for the original meeting. Any business that might have
been transacted at the original meeting may be transacted at any adjourned
meeting. If after the adjournment a new record date is fixed for the adjourned
meeting, the Secretary shall give notice of the adjourned meeting to
Shareholders of record entitled to vote at such meeting. Any irregularities in
the notice of any meeting or the nonreceipt of any such notice by any of the
Shareholders shall not invalidate any action otherwise properly taken at any
such meeting.
Section 5. Validity of Proxies. Subject to the provisions of the Trust
- --------- -------------------
Instrument, Shareholders entitled to vote may vote either in person or by proxy;
provided, that either (1) the Shareholder or his or her duly authorized attorney
has signed and dated a written instrument authorizing such proxy to act, or (2)
the Trustees adopt by resolution an electronic, telephonic, computerized or
other alternative to execution of a written instrument authorizing the proxy to
act, but if a proposal by anyone other than the officers or Trustees is
submitted to a vote of the Shareholders of any Series or Class, or if there is a
proxy contest or proxy solicitation or proposal in opposition to any proposal by
the officers or Trustees, Shares may be voted only in person or by written
proxy. Unless the proxy provides otherwise, it shall not be valid for more than
eleven months before the date of the meeting. All proxies shall be delivered to
the Secretary or other person responsible for recording the proceedings before
being voted. A proxy with respect to Shares held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to exercise
of such proxy the Trust receives a specific written notice to the contrary from
any one of them. Unless otherwise specifically limited by their terms, proxies
shall entitle the Shareholder to vote at any adjournment of a Shareholders'
meeting. A proxy purporting to be executed by or on behalf of a Shareholder
shall be deemed valid unless challenged at or prior to its exercise, and the
burden of proving invalidity shall rest on the challenger. At every meeting of
Shareholders, unless the voting is conducted by inspectors, the chairman of the
meeting shall decide all questions concerning the qualifications of voters, the
validity of proxies, and the acceptance or rejection of votes. Subject to the
provisions of the Delaware Business Trust Act, the Trust Instrument, or these
By-laws, the General Corporation Law of the State of Delaware relating to
proxies, and judicial interpretations thereunder shall govern all matters
concerning the giving, voting or validity of proxies, as if the Trust were a
Delaware corporation and the Shareholders were shareholders of a Delaware
corporation.
Section 6. Record Date. The Trustees may fix in advance a date up to ninety
- --------- -----------
days before the date of any Shareholders' meeting as a record date for the
determination of the Shareholders entitled to notice of, and to vote at, any
such meeting. The Shareholders of
- 6 -
<PAGE>
record entitled to vote at a Shareholders' meeting shall be deemed the
Shareholders of record at any meeting reconvened after one or more adjournments,
unless the Trustees have fixed a new record date. If the Shareholders' meeting
is adjourned for more than sixty days after the original date, the Trustees
shall establish a new record date.
Section 7. Action Without a Meeting. Shareholders may take any action without
- --------- -------------------------
a meeting if a majority (or such greater amount as may be required by law) of
the Outstanding Shares entitled to vote on the matter consent to the action in
writing and such written consents are filed with the records of Shareholders'
meetings. Such written consent shall be treated for all purposes as a vote at a
meeting of the Shareholders.
ARTICLE VI
----------
SHARES OF BENEFICIAL INTEREST
-----------------------------
Section 1. No Share Certificates. Neither the Trust nor any Series or Class
- --------- ---------------------
shall issue certificates certifying the ownership of Shares, unless the Trustees
may otherwise specifically authorize such certificates.
Section 2. Transfer of Shares. Shares shall be transferable only by a transfer
- --------- ------------------
recorded on the books of the Trust by the Shareholder of record in person or by
his or her duly authorized attorney or legal representative. Shares may be
freely transferred and the Trustees may, from time to time, adopt rules and
regulations regarding the method of transfer of such Shares.
ARTICLE VII
-----------
CUSTODY OF SECURITIES
---------------------
Section 1. Employment of a Custodian. The Trust shall at all times place and
- --------- -------------------------
maintain all cash, securities and other assets of the Trust and of each Series
in the custody of a custodian meeting the requirements set forth in Article VII,
Section 4 of the Trust Instrument ("Custodian"). The Custodian shall be
appointed from time to time by the Board of Trustees, who shall determine its
remuneration.
Section 2. Termination of Custodian Agreement. Upon termination of any
- --------- ----------------------------------
Custodian Agreement or the inability of the Custodian to continue to serve as
custodian, in either case with respect to the Trust or any Series, the Board of
Trustees shall (a) use its best efforts to obtain a successor Custodian; and (b)
require that the cash, securities and other assets owned by the Trust or any
Series be delivered directly to the successor Custodian.
- 7 -
<PAGE>
Section 3. Other Arrangements. The Trust may make such other arrangements for
- --------- ------------------
the custody of its assets (including deposit arrangements) as may be required by
any applicable law, rule or regulation.
ARTICLE VIII
------------
FISCAL YEAR AND ACCOUNTANT
--------------------------
Section 1. Fiscal Year. The fiscal year of the Trust shall end on July 31.
- --------- -----------
Section 2. Accountant. The Trust shall employ independent certified public
- --------- ----------
accountants as its Accountant to examine the accounts of the Trust and to sign
and certify financial statements filed by the Trust. The Accountant's
certificates and reports shall be addressed both to the Trustees and to the
Shareholders. A majority of the Disinterested Trustees shall select the
Accountant at any meeting held within ninety days before or after the beginning
of the fiscal year of the Trust, acting upon the recommendation of the Audit
Committee. The Trust shall submit the selection for ratification or rejection
at the next succeeding Shareholders' meeting, if such a meeting is to be held
within the Trust's fiscal year. If the selection is rejected at that meeting,
the Accountant shall be selected by majority vote of the Trust's outstanding
voting securities, either at the meeting at which the rejection occurred or at a
subsequent meeting of Shareholders called for the purpose of selecting an
Accountant. The employment of the Accountant shall be conditioned upon the
right of the Trust to terminate such employment without any penalty by vote of a
Majority Shareholder Vote at any Shareholders' meeting called for that purpose.
ARTICLE IX
----------
AMENDMENTS
----------
Section 1. General. Except as provided in Section 2 of this Article, these By-
- --------- -------
laws may be amended by the Trustees, or by the affirmative vote of a majority of
the Outstanding Shares entitled to vote at any meeting.
Section 2. By Shareholders Only. After the issue of any Shares, this Article
- --------- --------------------
may only be amended by the affirmative vote of the holders of the lesser of (a)
at least two-thirds of the Outstanding Shares present and entitled to vote at
any meeting, or (b) at least fifty percent of the Outstanding Shares.
ARTICLE X
---------
NET ASSET VALUE
---------------
The term "Net Asset Value" of any Series shall mean that amount by which
the assets belonging to that Series exceed its
- 8 -
<PAGE>
liabilities, all as determined by or under the direction of the Trustees. Net
Asset Value per Share shall be determined separately for each Series and each
Class and shall be determined on such days and at such times as the Trustees may
determine. The Trustees shall make such determination with respect to
securities for which market quotations are readily available, at the market
value of such securities, and with respect to other securities and assets, at
the fair value as determined in good faith by the Trustees; provided, however,
that the Trustees, without Shareholder approval, may alter the method of
appraising portfolio securities insofar as permitted under the 1940 Act and the
rules, regulations and interpretations thereof promulgated or issued by the SEC
or insofar as permitted by any order of the SEC applicable to the Series or to
the Class. The Trustees may delegate any of their powers and duties under this
Article X with respect to appraisal of assets and liabilities. At any time the
Trustees may cause the Net Asset Value per Share last determined to be
determined again in a similar manner and may fix the time when such redetermined
values shall become effective.
ARTICLE XI
----------
INVESTMENTS
-----------
Section 1. Investment Objectives, Policies and Restrictions. The Trust and/or
- --------- ------------------------------------------------
each Series shall adhere to the fundamental and nonfundamental investment
objectives, policies and restrictions applicable to the Trust and/or each Series
included in the Trust's current effective registration statement as filed with
the Commission. If a percentage limitation is adhered to at the time of an
investment, a later increase or decrease in the percentage resulting from a
change in the value of the assets of a Series shall not be a violation of such
investment restrictions.
Section 2. Amendment of Investment Objectives, Policies and Restrictions. Any
- --------- -------------------------------------------------------------
investment objectives, policies and restrictions of the Trust or any Series
which are deemed to be fundamental may not be changed without the approval of
the holders of a majority of the Outstanding Shares of the Trust or of the
Series affected which shall mean the lesser of (i) 67% of the Shares represented
at a meeting at which more than 50% of the Outstanding Shares are present or
represented by proxy or (ii) more than 50% of the Outstanding Shares. Any
investment objectives, policies or restrictions deemed nonfundamental may be
changed by vote of the Board of Trustees.
- 9 -
<PAGE>
ARTICLE XII
-----------
MISCELLANEOUS
-------------
Section 1. Inspection of Books. The Board of Trustees shall from time to time
- --------- -------------------
determine whether and to what extent, and at what times and places, and under
what conditions the accounts and books of the Trust or any Series or Class shall
be open to the inspection of Shareholders. No Shareholder shall have any right
to inspect any account or book or document of the Trust except as conferred by
law or otherwise by the Board of Trustees or by resolution of Shareholders.
Section 2. Severability. The provisions of these By-laws are severable. If
- --------- ------------
the Board of Trustees determine, with the advice of counsel, that any provision
hereof conflicts with the 1940 Act, the regulated investment company provisions
of the Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of these
By-laws; provided, however, that such determination shall not affect any of the
remaining provisions of these By-laws or render invalid or improper any action
taken or omitted prior to such determination. If any provision hereof shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision only in such jurisdiction
and shall not affect any other provision of these By-laws.
Section 3. Headings. Headings are placed in these By-laws for convenience of
- --------- --------
reference only and in case of any conflict, the text of these By-laws rather
than the headings shall control.
- 10 -
<PAGE>
<TABLE>
<CAPTION>
ARTICLE I
- ---------
<S> <C>
PRINCIPAL OFFICE AND SEAL.......... 1
-------------------------
Section 1. Principal Office...................... 1
----------------
Section 2. Seal.................................. 1
----
ARTICLE II
MEETINGS OF TRUSTEES............... 1
Section 1. Action by Trustees.................... 1
------------------
Section 2. Compensation of Trustees.............. 1
------------------------
ARTICLE III
COMMITTEES......................... 1
Section 1. Establishment......................... 1
-------------
Section 2. Proceedings; Quorum; Action........... 2
---------------------------
Section 3. Executive Committee................... 2
-------------------
Section 4. Nominating Committee.................. 2
--------------------
Section 5. Audit Committee....................... 2
---------------
Section 6. Compensation of Committee Members..... 2
---------------------------------
ARTICLE IV
OFFICERS........................... 2
Section 1. General............................... 2
-------
Section 2. Election, Tenure and Qualifications of
--------------------------------------
Officers.............................. 2
Section 3. Vacancies and Newly Created Offices... 3
-----------------------------------
Section 4. Removal and Resignation............... 3
-----------------------
Section 5. Chairman.............................. 3
--------
Section 6. President............................. 3
---------
Section 7. Vice President(s)..................... 3
-----------------
Section 8. Treasurer and Assistant Treasurer(s).. 4
------------------------------------
Section 9. Secretary and Assistant Secretaries... 4
-----------------------------------
Section 10. Compensation of Officers.............. 4
------------------------
Section 11. Surety Bond........................... 4
-----------
ARTICLE V
- ---------
MEETINGS OF SHAREHOLDERS........... 5
------------------------
Section 1. No Annual Meetings.................... 5
------------------
Section 2. Special Meetings...................... 5
----------------
Section 3. Notice of Meetings; Waiver............ 5
--------------------------
Section 4. Adjourned Meetings.................... 6
------------------
Section 5. Validity of Proxies................... 6
-------------------
Section 6. Record Date........................... 7
-----------
Section 7. Action Without a Meeting.............. 7
------------------------
ARTICLE VI
- ----------
SHARES OF BENEFICIAL INTEREST...... 7
-----------------------------
Section 1. No Share Certificates................. 7
---------------------
Section 2. Transfer of Shares.................... 7
------------------
ARTICLE VII
CUSTODY OF SECURITIES.............. 7
</TABLE>
- 11 -
<PAGE>
<TABLE>
<S> <C>
Section 1. Employment of a Custodian............. 7
-------------------------
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT......... 8
Section 1. Fiscal Year........................... 8
-----------
Section 2. Accountant............................ 8
----------
ARTICLE IX
- ----------
AMENDMENTS......................... 8
----------
Section 1. General............................... 8
-------
Section 2. By Shareholders Only.................. 8
--------------------
ARTICLE X
- ---------
NET ASSET VALUE.................... 9
---------------
ARTICLE XI
INVESTMENTS..................... 9
Section 1. Investment Objectives, Policies and
-----------------------------------
Restrictions.......................... 9
------------
Section 2. Amendment of Investment Objectives,
-----------------------------------
Policies and Restrictions............. 9
-------------------------
ARTICLE XII
MISCELLANEOUS................... 10
Section 1. Inspection of Books................... 10
-------------------
Section 2. Severability.......................... 10
------------
Section 3. Headings.............................. 10
--------
</TABLE>
- 12 -
<PAGE>
EXHIBIT 99.5(A)
DRAFT - 6/8/95
--------------
INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENT
THIS AGREEMENT made as of June ___, 1995, is between MANAGED ACCOUNTS
SERVICES PORTFOLIO TRUST, a Delaware business trust ("Trust"), and MITCHELL
HUTCHINS ASSET MANAGEMENT INC. ("Mitchell Hutchins"), a Delaware corporation
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended ("1934 Act"), and as an investment adviser under the Investment Advisers
Act of 1940, as amended ("Advisers Act").
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company, and
intends to offer for public sale distinct series of shares of beneficial
interest (each a "Portfolio"); and
WHEREAS, the Trust desires and intends to have one or more investment
advisers ("Sub-Advisers") provide investment advisory and portfolio management
services with respect to the Portfolios other than any Portfolios managed by
Mitchell Hutchins;
WHEREAS, the Trust desires to retain Mitchell Hutchins as investment
manager and administrator to furnish certain administrative, investment advisory
and management services to the Trust and each Portfolio as now exists and as
hereafter may be established, and Mitchell Hutchins is willing to furnish such
services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints Mitchell Hutchins as investment
-----------
manager and administrator of the Trust and each Portfolio for the period and on
the terms set forth in this Agreement. Mitchell Hutchins accepts such
appointment and agrees to render the services herein set forth, for the
compensation herein provided.
2. Duties as Investment Manager for PACE Money Market Investments.
--------------------------------------------------------------
(a) Subject to the supervision of the Trust's Board of Trustees ("Board"),
Mitchell Hutchins will provide a continuous investment program for the PACE
Money Market Investments Portfolio,
<PAGE>
including investment research and management. Mitchell Hutchins will determine
from time to time what securities and other investments will be purchased,
retained or sold by PACE Money Market Investments. Mitchell Hutchins will be
responsible for placing purchase and sell orders for investments and for other
related transactions. Mitchell Hutchins will provide services under this
Agreement in accordance with PACE Money Market Investments' investment
objective, policies and restrictions as stated in the Trust's Registration
Statement as it applies to PACE Money Market Investments.
(b) Mitchell Hutchins agrees that in placing orders with brokers, it will
attempt to obtain the best net result in terms of price and execution. In no
instance will portfolio securities be purchased from or sold to Mitchell
Hutchins, or any affiliated person thereof, except in accordance with the
federal securities laws and the rules and regulations thereunder. Mitchell
Hutchins may aggregate sales and purchase orders of the assets of the Portfolio
with similar orders being made simultaneously for other accounts advised by
Mitchell Hutchins or its affiliates. Whenever Mitchell Hutchins simultaneously
places orders to purchase or sell the same security on behalf of PACE Money
Market Investments and one or more other accounts advised by Mitchell Hutchins,
such orders will be allocated as to price and amount among all such accounts in
a manner believed to be equitable to each account. The Trust recognizes that in
some cases this procedure may adversely affect the results obtained for PACE
Money Market Investments.
(c) Mitchell Hutchins will maintain all books and records required to be
maintained by Mitchell Hutchins pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of
PACE Money Market Investments, and will furnish the Board with such periodic and
special reports as the Board reasonably may request. In compliance with the
requirements of Rule 31a-3 under the 1940 Act, Mitchell Hutchins hereby agrees
that all records which it maintains for the Trust and PACE Money Market
Investments are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-1 under the 1940
Act and further agrees to surrender promptly to the Trust any records which it
maintains for the Trust upon request by the Trust.
(d) At such times as shall be reasonably requested by the Board, Mitchell
Hutchins will provide the Board with economic and investment analyses and
reports as well as quarterly reports setting forth the performance of PACE Money
Market Investments and make available to the Board any economic, statistical and
investment services normally available to institutional or other customers of
Mitchell Hutchins.
- 2 -
<PAGE>
(e) In accordance with procedures adopted by the Board, as amended from
time to time, Mitchell Hutchins is responsible for assisting in the fair
valuation of all portfolio securities and will arrange for the provision of a
price(s) from a party(ies) independent of Mitchell Hutchins for each portfolio
security for which the custodian does not obtain prices in the ordinary course
of business from an automated pricing service.
3. Duties as Investment Manager to Other PACE Portfolios; Appointment of
---------------------------------------------------------------------
Sub-Advisers.
- ------------
(a) Subject to the supervision and direction of the Board, Mitchell
Hutchins will provide to the Trust investment management evaluation services
principally by performing initial review of prospective Sub-Advisers for each
Portfolio other than PACE Money Market Investments and supervising and
monitoring Sub-Adviser performance thereafter. Mitchell Hutchins agrees to
report to the Trust results of its evaluation, supervision and monitoring
functions and to keep certain books and records of the Trust in connection
therewith. Mitchell Hutchins further agrees to communicate performance
expectations and evaluations to the Sub-Advisers, and to recommend to the Trust
whether agreements with Sub-Advisers should be renewed, modified or terminated.
(b) Mitchell Hutchins is responsible for informing the Sub-Advisers of the
investment objective(s), policies and restrictions of the Portfolio(s) for which
the Sub-Adviser is responsible, for informing or ascertaining that it is aware
of other legal and regulatory responsibilities applicable to the Sub-Adviser
with respect to the Portfolio(s) for which the Sub-Adviser is responsible, and
for monitoring the Sub-Advisers' discharge of their duties; but Mitchell
Hutchins is not responsible for the specific actions (or inactions) of a Sub-
Adviser in the performance of the duties assigned to it.
(c) With respect to each Portfolio other than PACE Money Market
Investments, Mitchell Hutchins shall enter into an agreement ("Sub-Advisory
Agreements") with a sub-adviser in substantially the form attached hereto as
Exhibit 1.
(d) Mitchell Hutchins shall be responsible for the fees payable to and
shall pay the Sub-Adviser of each Portfolio the fee as specified in the Sub-
Advisory Agreement relating thereto.
4. Duties as Administrator. Mitchell Hutchins will administer the affairs
-----------------------
of the Trust and each Portfolio subject to the supervision of the Board and the
following understandings:
(a) Mitchell Hutchins will supervise all aspects of the operations of the
Trust and each Portfolio, including oversight of transfer agency, custodial and
accounting services, except as
- 3 -
<PAGE>
hereinafter set forth; provided, however, that nothing herein contained shall be
deemed to relieve or deprive the Board of its responsibility for and control of
the conduct of the affairs of the Trust and each Portfolio.
(b) Mitchell Hutchins will provide the Trust and each Portfolio with such
corporate, administrative and clerical personnel (including officers of the
Trust) and services as are reasonably deemed necessary or advisable by the
Board, including the maintenance of certain books and records of the Trust and
each Portfolio.
(c) Mitchell Hutchins will arrange, but not pay, for the periodic
preparation, updating, filing and dissemination (as applicable) of the Trust's
Registration Statement, proxy material, tax returns and required reports to each
Portfolio's shareholders and the Securities and Exchange Commission and other
appropriate federal or state regulatory authorities.
(d) Mitchell Hutchins will provide the Trust and each Portfolio with, or
obtain for it, adequate office space and all necessary office equipment and
services, including telephone service, heat, utilities, and similar items.
(e) Mitchell Hutchins will provide the Board on a regular basis with
economic and investment analyses and reports and make available to the Board
upon request any economic, statistical and investment services normally
available to institutional or other customers of Mitchell Hutchins.
5. Further Duties. In all matters relating to the performance of this
--------------
Agreement, Mitchell Hutchins will act in conformity with the Trust's Trust
Instrument, By-Laws and currently effective registration statement under the
1940 Act and any amendments or supplements thereto ("Registration Statement")
and with the instructions and directions of the Board and will comply with the
requirements of the 1940 Act, the Advisers Act, and the rules under each,
Subchapter M of the Internal Revenue Code as applicable to regulated investment
companies, and all other applicable federal and state laws and regulations.
6. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Agreement
are not impaired thereby. Nothing in this Agreement shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a Trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time
- 4 -
<PAGE>
and attention in part to the management or other aspects of any other business,
whether of a similar nature or a dissimilar nature.
7. Expenses.
--------
(a) During the term of this Agreement, each Portfolio will bear all
expenses, not specifically assumed by Mitchell Hutchins, incurred in its
operations and the offering of its shares.
(b) Expenses borne by each Portfolio will include but not be limited to the
following (or each Portfolio's proportionate share of the following): (i) the
cost (including brokerage commissions) of securities purchased or sold by the
Portfolio and any losses incurred in connection therewith; (ii) fees payable to
and expenses incurred on behalf of the Portfolio by Mitchell Hutchins under this
Agreement; (iii) expenses of organizing the Trust and each Portfolio; (iv)
filing fees and expenses relating to the registrations and qualification of the
Portfolio's shares and the Trust under federal and/or securities laws and
maintaining such registration and qualifications; (v) fees and salaries payable
to the Trust's Trustees and officers who are not interested persons of the
Trust; (vi) all expenses incurred in connection with the Trustees' services,
including travel expenses; (vii) taxes (including any income or franchise taxes)
and governmental fees; (viii) costs of any liability, uncollectible items of
deposit and other insurance and fidelity bonds; (ix) any costs, expenses or
losses arising out of a liability of or claim for damages or other relief
asserted against the Trust or Portfolio for violation of any law; (x) legal,
accounting and auditing expenses, including legal fees of special counsel for
those Trustees of the Trust who are not interested persons of the Trust; (xi)
charges of custodians, transfer agents and other agents; (xii) costs of
preparing share certificates; (xiii) expenses of setting in type and printing
prospectuses and supplements thereto, statements of additional information and
supplements thereto, reports and proxy materials for existing shareholders, and
costs of mailing such materials to existing shareholders; (xiv) any
extraordinary expenses (including fees and disbursements of counsel, costs of
actions, suits or proceedings to which the Trust is a party and the expenses the
Trust may incur as a result of its legal obligation to provide indemnification
to its officers, Trustees, agents and shareholders) incurred by the Trust or
Portfolio; (xv) fees, voluntary assessments and other expenses incurred in
connection with membership in investment company organizations; (xvi) cost of
mailing and tabulating proxies and costs of meetings of shareholders, the Board
and any committees thereof; (xvii) the cost of investment company literature and
other publications provided by the Trust to its Trustees and officers; and
(xviii) costs of mailing, stationery and communications equipment.
- 5 -
<PAGE>
(c) The Trust or a Portfolio may pay directly any expenses incurred by it
in its normal operations and, if any such payment is consented to by Mitchell
Hutchins and acknowledged as otherwise payable by Mitchell Hutchins pursuant to
this Agreement, the Portfolio may reduce the fee payable to Mitchell Hutchins
pursuant to Paragraph 8 thereof by such amount. To the extent that such
deductions exceed the fee payable to Mitchell Hutchins on any monthly payment
date, such excess shall be carried forward and deducted in the same manner from
the fee payable on succeeding monthly payment dates.
(d) Mitchell Hutchins will assume the cost of any compensation for services
provided to the Trust received by the officers of the Trust and by those
Trustees who are interested persons of the Trust.
(e) The payment or assumption by Mitchell Hutchins of any expenses of the
Trust or a Portfolio that Mitchell Hutchins is not required by this Agreement to
pay or assume shall not obligate Mitchell Hutchins to pay or assume the same or
any similar expense of the Trust or a Portfolio on any subsequent occasion.
8. Compensation.
------------
(a) For the administrative services provided to each Portfolio, each
Portfolio will pay to Mitchell Hutchins a fee, computed daily and paid monthly,
at an annual rate of 0.20% of each Portfolio's average daily net assets.
(b) For investment management services provided pursuant to this Agreement,
each Portfolio of the Trust shall pay to Mitchell Hutchins a fee, computed daily
and paid monthly on the first business day of the next succeeding calendar
month, at the annual percentage rate of each such Portfolio's average daily net
assets as set forth in Schedule I to this Agreement.
(c) For the services provided and the expenses assumed pursuant to this
Agreement with respect to any Portfolio hereafter established, such Portfolio
will pay to Mitchell Hutchins from the assets of the Portfolio a fee in an
amount to be agreed upon in a written fee agreement ("Fee Agreement") executed
by the Trust on behalf of the Portfolio and by Mitchell Hutchins. All such Fee
Agreements shall provide that they are subject to all terms and conditions of
this Agreement.
(d) The fee shall be computed daily and paid monthly to Mitchell Hutchins
on the first business day of the next succeeding calendar month.
(e) If this Agreement becomes effective or terminates before the end of any
month, the fee for the period from the effective day
- 6 -
<PAGE>
to the end of the month or from the beginning of such month to the date of
termination, as the case may be, shall be prorated according to the proportion
which such period bears to the full month in which such effectiveness or
termination occurs.
9. Limitation of Liability of Mitchell Hutchins. Mitchell Hutchins, its
--------------------------------------------
officers, directors, employees and delegates, including any Sub-Adviser or the
Trust, shall not be liable for any error of judgment or mistake of law or for
any loss suffered by any Portfolio, the Trust or any of its shareholders, in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on its part in
the performance of its duties or from reckless disregard by it or on the part of
its officers, directors, employees or delegates of their obligations and duties
under this Agreement. Any person, even though also an officer, director,
employee, or agent of Mitchell Hutchins, who may be or become an officer,
Trustee, employee or agent of the Trust shall be deemed, when rendering services
to any Portfolio or the Trust or acting with respect to any business of such
Portfolio or the Trust, to be rendering such service to or acting solely for the
Portfolio or the Trust and not as an officer, director, employee, or agent or
one under the control or direction of Mitchell Hutchins even though paid by it.
10. Limitation of Liability of the Trustees and Shareholders of the Trust.
---------------------------------------------------------------------
The Trustees of the Trust and the shareholders of any Portfolio shall not be
liable for any obligations of any Portfolio or the Trust under this Agreement
and Mitchell Hutchins agrees that, in asserting any rights or claims under this
Agreement, it shall look only to the assets and property of the Trust in
settlement of such right or claim, and not to such Trustees or shareholders.
11. Duration and Termination.
------------------------
(a) As to any Portfolio, this Agreement shall become effective upon the
date the Portfolio commences investment operations provided that, with respect
to any Portfolio, this Agreement shall not take effect unless it has first been
approved (i) by a vote of a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval, and (ii) by vote
of a majority of that Portfolio's outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for a period of two years. Thereafter, if not terminated,
this Agreement shall continue automatically for successive annual periods of
twelve months each, provided that such continuance is specifically approved at
least
- 7 -
<PAGE>
annually (i) by a vote of a majority of those Trustees of the Trust who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or with respect to any given Portfolio by vote of a majority of the
outstanding voting securities of such Portfolio.
(c) Notwithstanding the foregoing, with respect to any Portfolio this
Agreement may be terminated at any time, without the payment of any penalty, by
vote of the board or by a vote of a majority of the outstanding voting
securities of such Portfolio on sixty days' written notice to Mitchell Hutchins
and may be terminated by Mitchell Hutchins at any time, without the payment of
any penalty, on sixty days' written notice to the Trust. Termination of this
Agreement with respect to any given Portfolio shall in no way affect the
continued validity of this Agreement or the performance thereunder with respect
to any other Portfolio. This Agreement will automatically terminate in the
event of its assignment.
12. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement as to any
given Portfolio shall be effective until approved by vote of a majority of such
Portfolio's outstanding voting securities.
13. Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Delaware, without giving effect to the conflicts of
laws principles thereof. To the extent that the applicable laws of the State of
Delaware conflict with the applicable provisions of the 1940 Act, the latter
shall control.
14. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment," "broker," "investment
adviser," "national securities exchange," "net assets," "prospectus," "sale,"
"sell" and "security" shall have the same meanings as such terms have in the
1940 Act, subject to such exemption as may be granted by the Securities and
Exchange Commission by any rule, regulation or order. Where the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement is
relaxed by a rule, regulation
- 8 -
<PAGE>
or order of the Securities and Exchange Commission, whether of special or
general application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated as of the day and year first above
written.
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By: _____________________________________
Name:
Title:
Attest: MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
By _____________________________________
Name:
Title:
- 10 -
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Fee Rate
Paid by
Portfolio
to the
Portfolio Manager
--------- ---------
<S> <C>
PACE Money Market Investments 0.15%
PACE Government Securities Fixed Income Investments 0.50%
PACE Intermediate Fixed Income Investments 0.40%
PACE Strategic Fixed Income Investments 0.50%
PACE Municipal Fixed Income Investments 0.40%
PACE Global Fixed Income Investments 0.60%
PACE Large Company Value Equity Investments 0.60%
PACE Large Company Growth Equity Investments 0.60%
PACE Small/Medium Company Value Equity Investments 0.60%
PACE Small/Medium Company Growth Equity Investments 0.60%
PACE International Equity Investments 0.70%
PACE International Emerging Markets Equity Investments 0.90%
</TABLE>
- 11 -
<PAGE>
EXHIBIT 99.5(B)
SUB-ADVISORY AGREEMENT
----------------------
Agreement made as of _______________, 1995 between MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins"), and [Name of Sub-
Adviser] ("Sub-Adviser"), (the "Agreement").
RECITALS
--------
(1) Mitchell Hutchins has entered into a Management Agreement dated
______________ ("Management Agreement") with Managed Accounts Services Portfolio
Trust ("Trust"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended ("1940 Act") with respect to the
[Name of Portfolio] ("Portfolio") series of the Trust; and
(2) Mitchell Hutchins wishes to retain the Sub-Adviser to furnish certain
investment advisory services to Mitchell Hutchins and the Portfolio, and the
Sub-Adviser is willing to furnish those services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties agree as follows:
1. Appointment. Mitchell Hutchins hereby appoints the Sub-Adviser as an
------------
investment sub-adviser with respect to the Portfolio for the period and on the
terms set forth in this Agreement. The Sub-Adviser accepts that appointment and
agrees to render the services herein set forth, for the compensation herein
provided.
2. Duties as Sub-Adviser.
----------------------
(a) Subject to the supervision of and any guidelines adopted by the Trust's
Board of Trustees (the "Board"), the Sub-Adviser will provide a continuous
investment program for the Portfolio, including investment research and
management. The Sub-Adviser will determine from time to time what investments
will be purchased, retained or sold by the Portfolio. The Sub-Adviser will be
responsible for placing purchase and sell orders for investments and for other
related transactions. The Sub-Adviser will provide services under this
Agreement in accordance with the Portfolio's investment objective, policies and
restrictions as stated in the Portfolio's Registration Statement.
(b) The Sub-Adviser agrees that, in placing orders with brokers, it will
obtain the best net result in terms of price and
<PAGE>
execution; provided that, on behalf of the Portfolio, the Sub-Adviser may, in
its discretion, use brokers who provide the Portfolio with research, analysis,
advice and similar services to execute portfolio transactions on behalf of the
Portfolio, and the Sub-Adviser may pay to those brokers in return for brokerage
and research services a higher commission than may be charged by other brokers,
subject to the Sub-Adviser's determining in good faith that such commission is
reasonable in terms either of the particular transaction or of the overall
responsibility of the Sub-Adviser to the Portfolio and its other clients and
that the total commissions paid by the Portfolio will be reasonable in relation
to the benefits to the Portfolio over the long term. In no instance will
portfolio securities be purchased from or sold to the Sub-Adviser, or any
affiliated person thereof, except in accordance with the federal securities laws
and the rules and regulations thereunder. Whenever the Sub-Adviser
simultaneously places orders to purchase or sell the same security on behalf of
the Portfolio and one or more other accounts advised by the Sub-Adviser, the
orders will be allocated as to price and amount among all such accounts in a
manner believed to be equitable over time to each account. Mitchell Hutchins
recognizes that in some cases this procedure may adversely affect the results
obtained for the Portfolio.
(c) The Sub-Adviser will maintain all books and records required to be
maintained by the Sub-Adviser pursuant to the 1940 Act and the rules and
regulations promulgated thereunder with respect to transactions on behalf of the
Portfolio, and will furnish the Board and Mitchell Hutchins with such periodic
and special reports as the Board or Mitchell Hutchins reasonably may request. In
compliance with the requirements of Rule 31a-3 under the 1940 Act, the Sub-
Adviser hereby agrees that all records which it maintains for the Portfolio are
the property of the Trust, agrees to preserve for the periods prescribed by Rule
31a-2 under the 1940 Act any records which it maintains for the Trust and which
are required to be maintained by Rule 31a-1 under the 1940 Act, and further
agrees to surrender promptly to the Trust any records which it maintains for the
Trust upon request by the Trust.
(d) At such times as shall be reasonably requested by the Board or Mitchell
Hutchins, the Sub-Adviser will provide the Board and Mitchell Hutchins with
economic and investment analyses and reports as well as quarterly reports
setting forth the Portfolio's performance and make available to the Board and
Mitchell Hutchins any economic, statistical and investment services normally
available to institutional or other customers of the Sub-Adviser.
(e) In accordance with procedures adopted by the Board, as amended from
time to time, the Sub-Adviser is responsible for assisting in the fair valuation
of all portfolio securities and will arrange for the provision of a price(s)
from a party(ies) independent of the Sub-Adviser for each portfolio security for
- 2 -
<PAGE>
which the custodian does not obtain prices in the ordinary course of business
from an automated pricing service.
3. Further Duties. In all matters relating to the performance of this
---------------
Agreement, the Sub-Adviser will act in conformity with the Trust's Trust
Instrument, By-Laws and currently effective registration statement under the
1940 Act and any amendments or supplements thereto ("Registration Statement")
and with the instructions and directions of the Board and Mitchell Hutchins and
will comply with the requirements of the 1940 Act, the Investment Advisers Act
of 1940, as amended ("Advisers Act"), the rules under each, Subchapter M of the
Internal Revenue Code as applicable to regulated investment companies, and all
other applicable federal and state laws and regulations. Mitchell Hutchins
agrees to provide to the Sub-Adviser copies of the Trust's Trust Instrument, By-
Laws, Registration Statement, written instructions and directions of the Board
and Mitchell Hutchins, any amendments or supplements to any of these materials
as soon as practicable after such materials become available.
4. Expenses. During the term of this Agreement, the Sub-Adviser will bear
---------
all expenses incurred by it in connection with its services under this
Agreement.
5. Compensation.
-------------
(a) For the services provided and the expenses assumed by the Sub-Adviser
pursuant to this Agreement, Mitchell Hutchins, not the Portfolio, will pay to
the Sub-Adviser a fee, computed daily and payable monthly, at an annual rate of
____% of the Portfolio's average daily net assets (computed in the manner
specified in the Management Agreement), together with a schedule showing the
manner in which the fee was computed.
(b) The fee shall be computed daily and payable monthly to the Sub-Adviser
on or before the last business day of the next succeeding calendar month.
(c) For those periods in which Mitchell Hutchins has agreed to waive all or
a portion of its management fee, Mitchell Hutchins may ask the Sub-Adviser to
waive the same proportion of its fees.
(d) If this Agreement becomes effective or terminates before the end of any
month, the fee for the period from the effective date to the end of the month or
from the beginning of such month to the date of termination, as the case may be,
shall be prorated according to the proportion which such period bears to the
full month in which such effectiveness or termination occurs.
6. Limitation Of Liability. The Sub-Adviser shall not be liable for any
------------------------
error of judgment or mistake of law or for any loss suffered by the Portfolio,
the Trust or its shareholders or by Mitchell Hutchins in connection with the
matters to which this
- 3 -
<PAGE>
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from
reckless disregard by it of its obligations and duties under this Agreement.
7. Representations of Sub-Adviser. The Sub-Adviser represents, warrants
-------------------------------
and agrees as follows:
(a) The Sub-Adviser (i) is registered as an investment adviser under the
Advisers Act and will continue to be so registered for so long as this Agreement
remains in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act
from performing the services contemplated by this Agreement; (iii) has met, and
will seek to continue to meet for so long as this Agreement remains in effect,
any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services contemplated by this Agreement; (iv) has
the authority to enter into and perform the services contemplated by this
Agreement; and (v) will promptly notify Mitchell Hutchins of the occurrence of
any event that would disqualify the Sub-Adviser from serving as an investment
adviser of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
(b) The Sub-Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and will provide Mitchell Hutchins
and the Board with a copy of such code of ethics, together with evidence of its
adoption. Within fifteen days of the end of the last calendar quarter of each
year that this Agreement is in effect, the president or a vice-president of the
Sub-Adviser shall certify to Mitchell Hutchins that the Sub-Adviser has complied
with the requirements of Rule 17j-1 during the previous year and that there has
been no violation of the Sub-Adviser's code of ethics or, if such a violation
has occurred, that appropriate action was taken in response to such violation.
Upon the written request of Mitchell Hutchins, the Sub-Adviser shall permit
Mitchell Hutchins, its employees or its agents to examine the reports required
to be made to the Sub-Adviser by Rule 17j-1(c)(1) and all other records relevant
to the Sub-Adviser's code of ethics.
(c) The Sub-Adviser has provided Mitchell Hutchins with a copy of its Form
ADV as most recently filed with the Securities and Exchange Commission ("SEC")
and promptly will furnish a copy of all amendments to Mitchell Hutchins at least
annually.
(d) The Sub-Adviser will notify Mitchell Hutchins of any change of control
of the Sub-Adviser, including any change of its general partners or 25%
shareholders, as applicable, and any changes in the key personnel who are either
the portfolio manager(s) of the Portfolio or senior management of the Sub-
Adviser, in each case prior to or promptly after such change.
- 4 -
<PAGE>
8. Duration and Termination.
-------------------------
(a) This Agreement shall become effective upon the date first above
written, provided that this Agreement shall not take effect unless it has first
been approved (i) by a vote of a majority of those trustees of the Trust who are
not parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Portfolio's outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Agreement shall continue automatically for successive periods
of twelve months each, provided that such continuance is specifically approved
at least
annually (i) by a vote of a majority of those trustees of the Trust who are not
parties to this Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by the Board or by vote of a majority of the outstanding voting securities of
the Portfolio.
(c) Notwithstanding the foregoing, this Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Board or by a vote of a
majority of the outstanding voting securities of the Portfolio on 60 days'
written notice to the Sub-Adviser. This Agreement may also be terminated,
without the payment of any penalty, by Mitchell Hutchins: (i) upon 120 days'
written notice to the Sub-Adviser; (ii) immediately upon material breach by the
Sub-Adviser of any of the representations and warranties set forth in Paragraph
7 of this Agreement; or (iii) immediately if, in the reasonable judgment of
Mitchell Hutchins, the Sub-Adviser becomes unable to discharge its duties and
obligations under this Agreement, including circumstances such as financial
insolvency of the Sub-Adviser or other circumstances that could adversely affect
the Portfolio. The Sub-Adviser may terminate this Agreement at any time,
without the payment of any penalty, on 120 days' written notice to Mitchell
Hutchins. This Agreement will terminate automatically in the event of its
assignment or upon termination of the Management Agreement.
9. Amendment of this Agreement. No provision of this Agreement may be
----------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Agreement shall be
effective until approved by vote of a majority of the Portfolio's outstanding
voting securities (unless the Trust receives an SEC order permitting it to
modify the Agreement without such vote).
10. Governing Law. This Agreement shall be construed in accordance with
--------------
the 1940 Act and the laws of the State of Delaware, without giving effect to the
conflicts of laws principles thereof.
- 5 -
<PAGE>
To the extent that the applicable laws of the State of Delaware conflict with
the applicable provisions of the 1940 Act, the latter shall control.
11. Miscellaneous. The captions in this Agreement are included for
--------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors. As used in this
Agreement, the terms "majority of the outstanding voting securities,"
"affiliated person," "interested person," "assignment," "broker," "investment
adviser," "net assets," "sale," "sell" and "security" shall have the same
meaning as such terms have in the 1940 Act, subject to such exemption as may be
granted by the SEC by any rule, regulation or order. Where the effect of a
requirement of the federal securities laws reflected in any provision of this
Agreement is made less restrictive by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order. This Agreement may be
signed in counterpart.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized signatories as of the date and year first
above written.
Attest: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
1285 Avenue of the Americas
New York, New York 10019
By:____________________________________
Name:
Title:
Attest: [Name of Sub-Adviser]
[Address of Sub-Adviser]
By:____________________________________
Name:
Title:
- 7 -
<PAGE>
EXHIBIT 99.6(A)
DRAFT 6/8/95
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
DISTRIBUTION CONTRACT
SHARES OF BENEFICIAL INTEREST
CONTRACT made as of June ___, 1995, between MANAGED ACCOUNTS SERVICES
PORTFOLIO TRUST, a Delaware business trust ("Trust") and MITCHELL HUTCHINS ASSET
MANAGEMENT INC., a Delaware corporation ("Mitchell Hutchins").
WHEREAS the Trust is registered under the Investment Company Act of 1940,
as amended ("1940 Act"), as an open-end management investment company and
currently has twelve distinct series of shares of beneficial interest
("Series"), which correspond to distinct portfolios and have been designated as
PACE Money Market Investments, PACE Government Securities Fixed Income
Investments, PACE Intermediate Fixed Income Investments, PACE Strategic Fixed
Income Investments, PACE Municipal Fixed Income Investments, PACE Global Fixed
Income Investments, PACE Large Company Value Equity Investments, PACE Large
Company Growth Equity Investments, PACE Small/Medium Company Value Equity
Investments, PACE Small/Medium Company Growth Equity Investments, PACE
International Equity Investments, and PACE International Emerging Markets Equity
Investments; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of each of the above-
referenced Series; and
WHEREAS Mitchell Hutchins is willing to act as principal distributor of the
share of beneficial interest of each such Series on the terms and conditions
hereinafter set forth;
WHEREAS Mitchell Hutchins proposes to act as investment manager and
administrator for the Trust and each of its Series;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints Mitchell Hutchins as its agent
-----------
to be the principal distributor to sell and to arrange for the sale of the
shares of beneficial interest of each Series on the terms and for the period set
forth in this Contract. Mitchell Hutchins hereby accepts such appointment and
agrees to act hereunder. It is understood, however, that this appointment does
not preclude sales of the shares of beneficial
<PAGE>
interest directly through the Trust's transfer agent in the manner set forth in
the Registration Statement. As used in this Contract, the term "Registration
Statement" shall mean the registration statement of the Trust, and any
supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"),
and the 1940 Act.
2. Services and Duties of Mitchell Hutchins.
----------------------------------------
(a) Mitchell Hutchins agrees to sell shares of beneficial interest on
a best efforts basis from time to time during the term of this Contract as agent
for the Trust and upon the terms described in the Registration Statement.
(b) Upon the later of the date of this Contract or the initial
offering of the shares of beneficial interest to the public by a Series,
Mitchell Hutchins will hold itself available to receive purchase orders,
satisfactory to Mitchell Hutchins, for shares of beneficial interest of that
Series and will accept such orders on behalf of the Trust as of the time of
receipt of such orders and promptly transmit such orders as are accepted to the
Trust's transfer agent. Purchase orders shall be deemed effective at the time
and in the manner set forth in the Registration Statement.
(c) Mitchell Hutchins in its discretion may enter into agreements to
sell shares of beneficial interest to such registered and qualified retail
dealers, including but not limited to PaineWebber Incorporated ("PaineWebber"),
as it may select. In making agreements with such dealers, Mitchell Hutchins
shall act only as principal and not as agent for the Trust.
(d) The offering price of the shares of beneficial interest of each
Series shall be the net asset value per Share as next determined by the Trust
following receipt of an order at Mitchell Hutchins' principal office. The Trust
shall promptly furnish Mitchell Hutchins with a statement of each computation of
net asset value.
(e) Mitchell Hutchins shall not be obligated to sell any certain
number of shares of beneficial interest.
(f) To facilitate redemption of shares of beneficial interest by
shareholders directly or through dealers, Mitchell Hutchins is authorized but
not required on behalf of the Trust to repurchase shares of beneficial interest
presented to it by shareholders and dealers at the price determined in
accordance with, and in the manner set forth in, the Registration Statement.
(g) Mitchell Hutchins shall have the right to use any list of
shareholders of the Trust or any other list of investors
- 2 -
<PAGE>
which it obtains in connection with its provision of services under this
Contract; provided, however, that Mitchell Hutchins shall not sell or knowingly
provide such list or lists to any unaffiliated person.
3. Authorization to Enter into Dealer Agreements and to Delegate Duties
--------------------------------------------------------------------
as Distributor. With respect to the shares of beneficial interest of any or all
- --------------
Series, Mitchell Hutchins may enter into a dealer agreement with PaineWebber or
any other registered and qualified dealer with respect to sales of the shares of
beneficial interest or the provision of service activities. In a separate
contract or as part of any such dealer agreement, Mitchell Hutchins also may
delegate to PaineWebber or another registered and qualified dealer ("sub-
distributor") any or all of its duties specified in this Contract, provided that
such separate contract or dealer agreement imposes on the sub-distributor bound
thereby all applicable duties and conditions to which Mitchell Hutchins is
subject under this Contract, and further provided that such separate contract or
dealer agreement meets all requirements of the 1940 Act and rules thereunder.
4. Services Not Exclusive. The services furnished by Mitchell Hutchins
----------------------
hereunder are not to be deemed exclusive and Mitchell Hutchins shall be free to
furnish similar services to others so long as its services under this Contract
are not impaired thereby. Nothing in this Contract shall limit or restrict the
right of any director, officer or employee of Mitchell Hutchins, who may also be
a trustee, officer or employee of the Trust, to engage in any other business or
to devote his or her time and attention in part to the management or other
aspects of any other business, whether of a similar or a dissimilar nature.
5. Duties of the Trust.
-------------------
(a) The Trust reserves the right at any time to withdraw offering
shares of beneficial interest of any or all Series by written notice to Mitchell
Hutchins at its principal office.
(b) The Trust shall determine in its sole discretion whether
certificates shall be issued with respect to the shares of beneficial interest.
If the Trust has determined that certificates shall be issued, the Trust will
not cause certificates representing shares of beneficial interest to be issued
unless so requested by shareholders. If such request is transmitted by Mitchell
Hutchins, the Trust will cause certificates evidencing shares of beneficial
interest to be issued in such names and denominations as Mitchell Hutchins shall
from time to time direct.
- 3 -
<PAGE>
(c) The Trust shall keep Mitchell Hutchins fully informed of its
affairs and shall make available to Mitchell Hutchins copies of all information,
financial statements, and other papers which Mitchell Hutchins may reasonably
request for use in connection with the distribution of shares of beneficial
interest, including, without limitation, certified copies of any financial
statements prepared for the Trust by its independent public auditors and such
reasonable number of copies of the most current prospectus, statement of
additional information, and annual and interim reports of any Series as Mitchell
Hutchins may request, and the Trust shall cooperate fully in the efforts of
Mitchell Hutchins to sell and arrange for the sale of the shares of beneficial
interest of the Series and in the performance of Mitchell Hutchins under this
Contract.
(d) The Trust shall take, from time to time, all necessary action,
including payment of the related filing fee, as may be necessary to register the
shares of beneficial interest under the 1933 Act to the end that there will be
available for sale such number of shares of beneficial interest as Mitchell
Hutchins may be expected to sell. The Trust agrees to file, from time to time,
such amendments, reports, and other documents as may be necessary in order that
there will be no untrue statement of a material fact in the Registration
Statement, nor any omission of a material fact which omission would make the
statements therein misleading.
(e) The Trust shall use its best efforts to qualify and maintain the
qualification of an appropriate number of shares of beneficial interest of each
Series for sale under the securities laws of such states or other jurisdictions
as Mitchell Hutchins and the Trust may approve, and, if necessary or appropriate
in connection therewith, to qualify and maintain the qualification of the Trust
as a broker or dealer in such jurisdictions; provided that the Trust shall not
be required to amend its Trust Instrument or By-Laws to comply with the laws of
any jurisdiction, to maintain an office in any jurisdiction, to change the terms
of the offering of the shares of beneficial interest in any jurisdiction from
the terms set forth in its Registration Statement, to qualify as a foreign
corporation in any jurisdiction, or to consent to service of process in any
jurisdiction other than with respect to claims arising out of the offering of
the shares of beneficial interest. Mitchell Hutchins shall furnish such
information and other material relating to its affairs and activities as may be
required by the Trust in connection with such qualifications.
6. Expenses of the Trust. The Trust shall bear all costs and expenses of
---------------------
registering the shares of beneficial interest with the Securities and Exchange
Commission and state and other regulatory bodies, and shall assume expenses
related to communications with shareholders of each Series, including (i)
- 4 -
<PAGE>
fees and disbursements of its counsel and independent public auditors; (ii) the
preparation, filing and printing of registration statements and/or prospectuses
or statements of additional information required under the federal securities
laws; (iii) the preparation and mailing of annual and interim reports,
prospectuses, statements of additional information and proxy materials to
shareholders; and (iv) the qualifications of shares of beneficial interest for
sale and of the Trust as a broker or dealer under the securities laws of such
jurisdictions as shall be selected by the Trust and Mitchell Hutchins pursuant
to Paragraph 6(e) hereof, and the costs and expenses payable to each such
jurisdiction for continuing qualification therein.
7. Expenses of Mitchell Hutchins. Mitchell Hutchins shall bear all costs
-----------------------------
and expenses of (i) preparing, printing and distributing any materials not
prepared by the Trust and other materials used by Mitchell Hutchins in
connection with the sale of shares of beneficial interest under this Contract,
including the additional cost of printing copies of prospectuses, statements of
additional information, and annual and interim shareholder reports other than
copies thereof required for distribution to existing shareholders or for filing
with any federal or state securities authorities; (ii) any expenses of
advertising incurred by Mitchell Hutchins in connection with such offering;
(iii) the expenses of registration or qualification of Mitchell Hutchins as a
broker or dealer under federal or state laws and the expenses of continuing such
registration or qualification; and (iv) any compensation paid to Mitchell
Hutchins' employees and others for selling shares of beneficial interest, and
any expenses of Mitchell Hutchins, its employees and others who engage in or
support the sale of shares of beneficial interest as may be incurred in
connection with their sales efforts.
8. Indemnification.
---------------
(a) The Trust agrees to indemnify, defend and hold Mitchell Hutchins,
its officers and directors, and any person who controls Mitchell Hutchins within
the meaning of Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which Mitchell Hutchins, its officers,
directors or any such controlling person may incur under the 1933 Act, or under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement or arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement
- 5 -
<PAGE>
or omission or alleged untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by Mitchell Hutchins to the
Trust for use in the Registration Statement; provided, however, that this
indemnity agreement shall not inure to the benefit of any person who is also an
officer or trustee of the Trust or who controls the Trust within the meaning of
Section 15 of the 1933 Act, unless a court of competent jurisdiction shall
determine, or it shall have been determined by controlling precedent, that such
result would not be against public policy as expressed in the 1933 Act; and
further provided, that in no event shall anything contained herein be so
construed as to protect Mitchell Hutchins against any liability to the Trust or
to the shareholders of any Series to which Mitchell Hutchins would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations under this Contract. The Trust shall not be liable to Mitchell
Hutchins under this indemnity agreement with respect to any claim made against
Mitchell Hutchins or any person indemnified unless Mitchell Hutchins or other
such person shall have notified the Trust in writing of the claim within a
reasonable time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon Mitchell
Hutchins or such other person (or after Mitchell Hutchins or the person shall
have received notice of service on any designated agent). However, failure to
notify the Trust of any claim shall not relieve the Trust from any liability
which it may have to Mitchell Hutchins or any person against whom such action is
brought otherwise than on account of this indemnity agreement. The Trust shall
be entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any claims subject
to this indemnity agreement. If the Trust elects to assume the defense of any
such claim, the defense shall be conducted by counsel chosen by the Trust and
satisfactory to indemnified defendants in the suit whose approval shall not be
unreasonably withheld. In the event that the Trust elects to assume the defense
of any suit and retain counsel, the indemnified defendants shall bear the fees
and expenses of any additional counsel retained by them. If the Trust does not
elect to assume the defense of a suit, it will reimburse the indemnified
defendants for the reasonable fees and expenses of any counsel retained by the
indemnified defendants. The Trust agrees to notify Mitchell Hutchins promptly
of the commencement of any litigation or proceedings against it or any of its
officers or trustees in connection with the issuance or sale of any of its
shares of beneficial interest.
(b) Mitchell Hutchins agrees to indemnify, defend, and hold the Trust,
its officers and trustees and any person who controls the Trust within the
meaning of Section 15 of the 1933 Act, free and harmless from and against any
and all claims, de-
- 6 -
<PAGE>
mands, liabilities and expenses (including the cost of investigating or
defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which the Trust, its trustees or officers, or
any such controlling person may incur under the 1933 Act or under common law or
otherwise arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by Mitchell Hutchins
to the Trust for use in the Registration Statement, arising out of or based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement necessary to
make such information not misleading, or arising out of any agreement between
Mitchell Hutchins and any retail dealer, or arising out of any supplemental
sales literature or advertising used by Mitchell Hutchins in connection with its
duties under this Contract. Mitchell Hutchins shall be entitled to participate,
at its own expense, in the defense or, if it so elects, to assume the defense of
any suit brought to enforce the claim, but if Mitchell Hutchins elects to assume
the defense, the defense shall be conducted by counsel chosen by Mitchell
Hutchins and satisfactory to the indemnified defendants whose approval shall not
be unreasonably withheld. In the event that Mitchell Hutchins elects to assume
the defense of any suit and retain counsel, the defendants in the suit shall
bear the fees and expenses of any additional counsel retained by them. If
Mitchell Hutchins does not elect to assume the defense of any suit, it will
reimburse the indemnified defendants in the suit for the reasonable fees and
expenses of any counsel retained by them.
9. Limitation of Liability of the Trustees and Shareholders of the Trust.
---------------------------------------------------------------------
The trustees of the Trust and the shareholders of any Series shall not be liable
for any obligations of the Trust or any Series under this Contract, and Mitchell
Hutchins agrees that, in asserting any rights or claims under this Contract, it
shall look only to the assets and property of the Trust or the particular Series
in settlement of such right or claims, and not to such trustees or shareholders.
10. Services Provided to the Trust by Employees of Mitchell Hutchins. Any
----------------------------------------------------------------
person, even though also an officer, director, employee or agent of Mitchell
Hutchins, who may be or become an officer, trustee, employee or agent of the
Trust, shall be deemed, when rendering services to the Trust or acting in any
business of the Trust, to be rendering such services to or acting solely for the
Trust and not as an officer, director, employee or agent or one under the
control or direction of Mitchell Hutchins even though paid by Mitchell Hutchins.
11. Duration and Termination.
------------------------
(a) This Contract shall become effective upon the date hereabove
written, provided that, with respect to any Series,
- 7 -
<PAGE>
this Contract shall not take effect unless such action has first been approved
by vote of a majority of the Board and by vote of a majority of those trustees
of the Trust who are not interested persons of the Trust as defined in the 1940
Act ("Independent Trustees"), cast in person at a meeting called for the purpose
of voting on such action.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for a period of one year. Thereafter, if not terminated,
this Contract shall continue automatically for successive periods of twelve
months each, provided that such continuance is specifically approved at least
annually (i) by a vote of a majority of the Independent Trustees, cast in person
at a meeting called for the purpose of voting on such approval, and (ii) by the
Board or with respect to any given Series by vote of a majority of the
outstanding voting securities of the shares of beneficial interest of such
Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Contract may be terminated at any time, without the payment of any penalty, by
vote of the Board, by vote of a majority of the Independent Trustees or by vote
of a majority of the outstanding voting securities of the shares of beneficial
interest of such Series on sixty days' written notice to Mitchell Hutchins or by
Mitchell Hutchins at any time, without the payment of any penalty, on sixty
days' written notice to the Trust or such Series. This Contract will
automatically terminate in the event of its assignment.
(d) Termination of this Contract with respect to any given Series
shall in no way affect the continued validity of this Contract or the
performance thereunder with respect to any other Series.
12. Amendment of this Contract. No provision of this Contract may be
--------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. Governing Law. This Contract shall be construed in accordance with the
-------------
laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
14. Notice. Any notice required or permitted to be given by either party
------
to the other shall be deemed sufficient upon receipt in writing at the other
party's principal offices.
15. Miscellaneous. The captions in this Contract are included for
-------------
convenience of reference only and in no way define
- 8 -
<PAGE>
or delimit any of the provisions hereof or otherwise affect their construction
or effect. If any provision of this Contract shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Contract shall
not be affected thereby. This Contract shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors. As used in
this Contract, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the l940 Act.
- 9 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be
executed by their officers designated as of the day and year first above
written.
ATTEST: MANAGED ACCOUNTS SERVICES
PORTFOLIO TRUST
_________________________ By:
-------------------------
ATTEST: MITCHELL HUTCHINS ASSET MANAGEMENT INC.
_________________________ By:
-------------------------
- 10 -
<PAGE>
EXHIBIT 99.6(B)
DRAFT 6/8/95
------------
SELECTED DEALER AGREEMENT
BENEFICIAL SHARES OF INTEREST OF
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
AGREEMENT made as of June __, 1995, between Mitchell Hutchins Asset
Management Inc., a Delaware corporation ("Mitchell Hutchins"), and PaineWebber
Incorporated, a Delaware corporation ("PaineWebber").
WHEREAS Managed Accounts Services Portfolio Trust ("Trust") is a Delaware
business trust registered under the Investment Company Act of 1940, as amended
("1940 Act"), as an open-end management investment company; and
WHEREAS the Trust currently has twelve distinct series of shares of
beneficial interest ("Series"), which correspond to distinct portfolios and have
been designated as PACE Money Market Investments, PACE Government Securities
Fixed Income Investments, PACE Intermediate Fixed Income Investments, PACE
Strategic Fixed Income Investments, PACE Municipal Fixed Income Investments,
PACE Global Fixed Income Investments, PACE Large Company Value Equity
Investments, PACE Large Company Growth Equity Investments, PACE Small/Medium
Company Value Equity Investments, PACE Small/Medium Company Growth Equity
Investments, PACE International Equity Investments, and PACE International
Emerging Markets Equity Investments; and
WHEREAS the Trust's board of trustees ("Board") has established an
unlimited number of shares of beneficial interest of each of the above-
referenced Series; and
WHEREAS Mitchell Hutchins has entered into a Distribution Contract with the
Trust ("Distribution Contract") pursuant to which Mitchell Hutchins serves as
principal distributor in connection with the offering and sale of the shares of
beneficial interest of each such Series; and
WHEREAS Mitchell Hutchins desires to retain PaineWebber as its agent in
connection with the offering and sale of the shares of beneficial interest of
each Series and to delegate to PaineWebber performance of certain of the
services which Mitchell Hutchins provides to the Trust under the Distribution
Contract; and
WHEREAS the sales of the shares of beneficial interest of each Series shall
be available exclusively to participants in the PACE Program; and
<PAGE>
WHEREAS PaineWebber is willing to act as Mitchell Hutchins' agent in
connection with the offering and sale of such shares of beneficial interest and
to perform such services on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the promises and the mutual covenants
contained herein, Mitchell Hutchins and PaineWebber agree as follows:
1. Appointment. Mitchell Hutchins hereby appoints PaineWebber as its
-----------
agent to sell and to arrange for the sale of the shares of beneficial interest
of each Series on the terms and for the period set forth in this Agreement.
Mitchell Hutchins also appoints PaineWebber as its agent for the performance of
certain other services set forth herein which Mitchell Hutchins provides to the
Trust under the Distribution Contract. PaineWebber hereby accepts such
appointments and agrees to act hereunder. It is understood, however, that these
appointments do not preclude sales of shares of beneficial interest of each
Series directly through the Trust's transfer agent in the manner set forth in
the Registration Statement. As used in this Agreement, the term "Registration
Statement" shall mean the Registration Statement of the Trust, and any
supplements thereto, under the Securities Act of 1933, as amended ("1933 Act"),
and the 1940 Act.
2. Services, Duties and Representations of PaineWebber.
---------------------------------------------------
(a) PaineWebber agrees to sell the shares of beneficial interest on a
best efforts basis from time to time during the term of this Agreement as agent
for Mitchell Hutchins and upon the terms described in this Agreement and the
Registration Statement.
(b) Upon the later of the date of this Agreement or the initial
offering of shares of beneficial interest by a Series to the public, PaineWebber
will hold itself available to receive orders, satisfactory to PaineWebber and
Mitchell Hutchins, for the purchase of shares of beneficial interest and will
accept such orders on behalf of Mitchell Hutchins and the Trust as of the time
of receipt of such orders and will promptly transmit such orders as are accepted
to the Trust's transfer agent. Purchase orders shall be deemed effective at the
time and in the manner set forth in the Registration Statement.
(c) PaineWebber in its discretion may sell shares of beneficial
interest to (i) such other registered and qualified retail dealers as it may
select, subject to the approval of Mitchell Hutchins. In making agreements with
such dealers, PaineWebber shall act only as principal and not as agent for
Mitchell Hutchins or the Trust.
- 2 -
<PAGE>
(d) The offering price of the shares of beneficial interest of each
Series shall be the net asset value per Share as next determined by the Trust
following receipt of an order at PaineWebber's principal office. Mitchell
Hutchins shall promptly furnish or arrange for the furnishing to PaineWebber of
a statement of each computation of net asset value.
(e) PaineWebber shall not be obligated to sell any certain number of
shares of beneficial interest of each Series.
(f) To facilitate redemption of shares of beneficial interest by
shareholders directly or through dealers, PaineWebber is authorized but not
required on behalf of Mitchell Hutchins and the Trust to repurchase shares of
beneficial interest presented to it by shareholders and other dealers at the
price determined in accordance with, and in the manner set forth in, the
Registration Statement.
(g) PaineWebber represents and warrants that: (i) it is a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD")
and agrees to abide by the Rules of Fair Practice of the NASD; (ii) it is
registered as a broker-dealer with the Securities and Exchange Commission; (iii)
it will maintain any filings and licenses required by federal and state laws to
conduct the business contemplated under this Agreement; and (iv) it will comply
with all federal and state laws and regulations applicable to the offer and sale
of the shares of beneficial interest.
(h) PaineWebber shall not incur any debts or obligations on behalf of
Mitchell Hutchins or the Trust. PaineWebber shall bear all costs that it incurs
in selling the shares of beneficial interest and in complying with the terms and
conditions of this Agreement as more specifically set forth in paragraph 8.
(i) PaineWebber shall not permit any employee or agent to offer or
sell shares of beneficial interest to the public unless such person is duly
licensed under applicable federal and state laws and regulations.
(j) PaineWebber shall not (i) furnish any information or make any
representations concerning the shares of beneficial interest other than those
contained in the Registration Statement or in sales literature or advertising
that has been prepared or approved by Mitchell Hutchins as provided in paragraph
6 or (ii) offer or sell the shares of beneficial interest in jurisdictions in
which they have not been approved for offer and sale.
3. Services Not Exclusive. The services furnished by PaineWebber
----------------------
hereunder are not to be deemed exclusive and
- 3 -
<PAGE>
PaineWebber shall be free to furnish similar services to others so long as its
services under this Agreement are not impaired thereby. Nothing in this
Agreement shall limit or restrict the right of any director, officer or employee
of PaineWebber who may also be a director, trustee, officer or employee of
Mitchell Hutchins or the Trust, to engage in any other business or to devote his
or her time and attention in part to the management or other aspects of any
other business, whether of a similar or a dissimilar nature.
4. Duties of Mitchell Hutchins.
---------------------------
(a) It is understood that the Trust reserves the right at any time to
withdraw all offerings of shares of beneficial interest of any or all Series by
written notice to Mitchell Hutchins.
(b) Mitchell Hutchins shall keep PaineWebber fully informed of the
Trust's affairs and shall make available to PaineWebber copies of all
information, financial statements and other papers which PaineWebber may
reasonably request for use in connection with the distribution of shares of
beneficial interest, including, without limitation, certified copies of any
financial statements prepared for the Trust by its independent public auditors
and such reasonable number of copies of the most current prospectus, statement
of additional information, and annual and interim reports of any Series as
PaineWebber may request, and Mitchell Hutchins shall cooperate fully in the
efforts of PaineWebber to sell and arrange for the sale of the shares of
beneficial interest and in the performance of PaineWebber under this Agreement.
(c) Mitchell Hutchins shall comply with all state and federal laws and
regulations applicable to a distributor of the shares of beneficial interest.
5. Advertising. Mitchell Hutchins agrees to make available such sales
-----------
and advertising materials relating to the shares of beneficial interest as
Mitchell Hutchins in its discretion determines appropriate. PaineWebber agrees
to submit all sales and advertising materials developed by it relating to the
shares of beneficial interest to Mitchell Hutchins for approval. PaineWebber
agrees not to publish or distribute such materials to the public without first
receiving such approval in writing. Mitchell Hutchins shall assist PaineWebber
in obtaining any regulatory approvals of such materials that may be required of
or desired by PaineWebber.
6. Records. PaineWebber agrees to maintain all records required by
-------
applicable state and federal laws and regulations relating to the offer and sale
of the shares of beneficial
- 4 -
<PAGE>
interest. Mitchell Hutchins and its representatives shall have access to such
records during normal business hours for review or copying.
7. Expenses of PaineWebber. PaineWebber shall bear all costs and
-----------------------
expenses of (i) preparing, printing, and distributing any materials not prepared
by the Trust or Mitchell Hutchins and other materials used by PaineWebber in
connection with its offering of shares of beneficial interest for sale to the
public; (ii) any expenses of advertising incurred by PaineWebber in connection
with such offering; (iii) the expenses of registration or qualification of
PaineWebber as a dealer or broker under federal or state laws and the expenses
of continuing such registration or qualification; and (iv) any compensation paid
to PaineWebber's Investment Executives or other employees and others for selling
shares of beneficial interest, and any expenses of PaineWebber, its Investment
Executives and employees and others who engage in or support the sale of shares
of beneficial interest as may be incurred in connection with their sales
efforts. PaineWebber shall bear such additional costs and expenses as it and
Mitchell Hutchins may agree upon, such agreement to be evidenced in a writing
signed by both parties. Mitchell Hutchins shall advise the Board of any such
agreement as to additional costs and expenses borne by PaineWebber at their
first regular meeting held after such agreement but shall not be required to
obtain prior approval for such agreements from the Board.
8. Indemnification.
---------------
(a) Mitchell Hutchins agrees to indemnify, defend, and hold
PaineWebber, its officers and directors, and any person who controls PaineWebber
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities, and expenses (including the
cost of investigating or defending such claims, demands, or liabilities and any
counsel fees incurred in connection therewith) which PaineWebber, its officers,
directors, or any such controlling person may incur under the 1933 Act, under
common law or otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in the Registration Statement; arising
out of or based upon any alleged omission to state a material fact required to
be stated in the Registration Statement thereof or necessary to make the
statements in the Registration Statement thereof not misleading; or arising out
of any sales or advertising materials with respect to the shares of beneficial
interest provided by Mitchell Hutchins to PaineWebber. However, this indemnity
agreement shall not apply to any claims, demands, liabilities, or expenses that
arise out of or are based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
information furnished in writing by PaineWebber to Mitchell
- 5 -
<PAGE>
Hutchins or the Trust for use in the Registration Statement or in any sales or
advertising material; and further provided, that in no event shall anything
contained herein be so construed as to protect PaineWebber against any liability
to Mitchell Hutchins or the Trust or to the shareholders of any Series to which
PaineWebber would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of its duties, or by reason of its
reckless disregard of its obligations under this Agreement.
(b) PaineWebber agrees to indemnify, defend, and hold Mitchell
Hutchins and its officers and directors, the Trust, its officers and trustees,
and any person who controls Mitchell Hutchins or the Trust within the meaning of
Section 15 of the 1933 Act, free and harmless from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which Mitchell Hutchins or its officers or
directors or the Trust, its officers or trustees, or any such controlling person
may incur under the 1933 Act, under common law or otherwise arising out of or
based upon any alleged untrue statement of a material fact contained in
information furnished in writing by PaineWebber to Mitchell Hutchins or the
Trust for use in the Registration Statement; arising out of or based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or necessary to make such
information not misleading; or arising out of any agreement between PaineWebber
and any other retail dealer; or arising out of any sales or advertising material
used by PaineWebber in connection with its duties under this Agreement.
9. Duration and Termination.
------------------------
(a) This Agreement shall become effective upon the date written above,
provided that, with respect to any Series, this Contract shall not take effect
unless such action has first been approved by vote of a majority of the Board
and by vote of a majority of those trustees of the Trust who are not interested
persons of the Trust as defined the 1940 Act ("Independent Trustees"), cast in
person at a meeting called for the purpose of voting on such action.
(b) Unless sooner terminated as provided herein, this Agreement shall
continue in effect for a period of one year. Thereafter, if not terminated,
this Agreement shall continue automatically for successive periods of twelve
months each, provided that such continuance is specifically approved at least
annually (i) by a vote of a majority of the Independent Trustees, cast in person
at a meeting called for the purpose of voting on such approval, and (ii) by the
Board or with respect to any given
- 6 -
<PAGE>
Series by vote of a majority of the outstanding voting securities of the shares
of beneficial interest of such Series.
(c) Notwithstanding the foregoing, with respect to any Series, this
Agreement may be terminated at any time, without the payment of any penalty, by
either party, upon the giving of 30 days' written notice. Such notice shall be
deemed to have been given on the date it is received in writing by the other
party or any officer thereof. This Agreement may also be terminated at any
time, without the payment of any penalty, by vote of the Board, by vote of a
majority of the Independent Trustees or by vote of a majority of the outstanding
voting securities of the shares of beneficial interest of such Series on 30
days' written notice to Mitchell Hutchins and PaineWebber.
(d) Termination of this Agreement with respect to any given Series
shall in no way affect the continued validity of this Agreement or the
performance thereunder with respect to any other Series. This Agreement will
automatically terminate in the event of its assignment or in the event that the
Distribution Contract is terminated.
10. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
amended, changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
11. Use of PaineWebber Name. PaineWebber hereby authorizes Mitchell
-----------------------
Hutchins to use the name "PaineWebber Incorporated" or any name derived
therefrom in any sales or advertising materials prepared and/or used by Mitchell
Hutchins in connection with its duties as distributor of the shares of
beneficial interest, but only for so long as this Agreement or any extension,
renewal or amendment hereof remains in effect, including any similar agreement
with any organization which shall have succeeded to the business of PaineWebber.
12. Governing Law. This Agreement shall be construed in accordance with
-------------
the laws of the State of Delaware and the 1940 Act. To the extent that the
applicable laws of the State of Delaware conflict with the applicable provisions
of the 1940 Act, the latter shall control.
13. Miscellaneous. The captions in this Agreement are included for
--- -------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby. This Agreement shall be binding upon and shall inure to
- 7 -
<PAGE>
the benefit of the parties hereto and their respective successors. As used in
this Agreement, the terms "majority of the outstanding voting securities,"
"interested person" and "assignment" shall have the same meanings as such terms
have in the 1940 Act.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated as of the day and year first written
above.
MITCHELL HUTCHINS ASSET
MANAGEMENT INC.
Attest: _______________________ By: ________________________
PAINEWEBBER INCORPORATED
Attest: _______________________ By: ________________________
- 9 -
<PAGE>
EXHIBIT 99.8
CUSTODIAN CONTRACT
Between
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
and
STATE STREET BANK AND TRUST COMPANY
Global/Series/Trust
21E593
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Employment of Custodian and Property to be Held By
It...................................................... 1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States.. 2
2.1 Holding Investments................................ 2
2.2 Delivery of Securities............................. 2
2.3 Registration of Securities......................... 5
2.4 Bank Accounts...................................... 5
2.5 Availability of Federal Funds...................... 5
2.6 Collection of Income............................... 6
2.7 Payment of Fund Monies............................. 6
2.8 Liability for Payment in Advance of Receipt of
Securities Purchased............................... 7
2.9 Appointment of Agents.............................. 8
2.10 Deposit of Fund Assets in Securities System........ 8
2.11 Fund Assets Held in the Custodian's Direct
Paper System...................................... 10
2.12 Segregated Account................................ 10
2.13 Ownership Certificates for Tax Purposes........... 11
2.14 Proxies........................................... 11
2.15 Communications Relating to Portfolio
Securities........................................ 11
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States............. 12
3.1 Appointment of Foreign Sub-Custodians............. 12
3.2 Assets to be Held................................. 12
3.3 Foreign Securities Systems........................ 12
3.4 Holding Securities................................ 13
3.5 Agreements with Foreign Banking Institutions...... 13
3.6 Access of Independent Accountants of the Fund..... 13
3.7 Reports by Custodian.............................. 14
3.8 Transactions in Foreign Custody Account........... 14
3.9 Liability of Foreign Sub-Custodians............... 14
3.10 Liability of Custodian............................ 15
3.11 Reimbursement for Advances........................ 15
3.12 Monitoring Responsibilities....................... 15
3.13 Branches of U.S. Banks............................ 16
3.14 Tax Law........................................... 16
4. Payments for Sales or Repurchases or Redemptions
of Shares of the Fund.................................. 16
5. Proper Instructions.................................... 17
6. Actions Permitted Without Express Authority............ 18
7. Evidence of Authority.................................. 18
<PAGE>
8. Duties of Custodian With Respect to the Books of Account
and Calculation of Net Asset Value and Net Income...... 18
9. Records................................................ 19
10. Opinion of Fund's Independent Accountants.............. 19
11. Reports to Fund by Independent Public Accountants...... 19
12. Compensation of Custodian.............................. 20
13. Responsibility of Custodian............................ 20
14. Effective Period, Termination and Amendment............ 22
15. Successor Custodian.................................... 22
16. Interpretive and Additional Provisions................. 23
17. Additional Funds....................................... 24
18. Massachusetts Law to Apply............................. 24
19. Prior Contracts........................................ 24
20. Shareholder Communications Election.................... 24
<PAGE>
CUSTODIAN CONTRACT
------------------
This Contract between Managed Accounts Services Portfolio Trust, a business
trust organized and existing under the laws of Delaware, having its principal
place of business at 1285 Avenue of Americas, New York, New York, 10019
hereinafter called the "Fund", and State Street Bank and Trust Company, a
Massachusetts trust company, having its principal place of business at 225
Franklin Street, Boston, Massachusetts, 02110, hereinafter called the
"Custodian",
WITNESSETH:
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets; and
WHEREAS, the Fund intends to initially offer shares in twelve series, the
PACE Money Market Investments, PACE Government Securities Fixed Income
Investments, PACE Intermediate Fixed Income Investments, PACE Strategic Fixed
Income Investments, PACE Municipal Fixed Income Investments, PACE Global Fixed
Income Investments, PACE Large Company Value Equity Investments, PACE Large
Company Growth Equity Investments, PACE Small\Medium Company Value Equity
Investments, PACE Small\Medium Company Growth Equity Investments, PACE
International Equity Investments and PACE International Emerging Markets Equity
Investments (such series together with all other series subsequently established
by the Fund and made subject to this Contract in accordance with paragraph 17,
being herein referred to as the "Portfolio(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
-----------------------------------------------------
The Fund hereby employs the Custodian as the custodian of the assets of the
Portfolios of the Fund, including securities which the Fund, on behalf of the
applicable Portfolio desires to be held in places within the United States
("domestic securities") and securities it desires to be held outside the United
States ("foreign securities") pursuant to the provisions of the Declaration of
Trust. The Fund on behalf of the Portfolio(s) agrees to deliver to the
Custodian all securities and cash of the Portfolios, and all payments of income,
payments of principal or capital distributions received by it with respect to
all securities owned by the Portfolio(s) from time to time, and the cash
consideration received by it for such new or treasury shares of
1
<PAGE>
beneficial interest of the Fund representing interests in the Portfolios,
("Shares") as may be issued or sold from time to time. The Custodian shall not
be responsible for any property of a Portfolio held or received by the Portfolio
and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States but only in
accordance with an applicable vote by the Board of Trustees of the Fund on
behalf of the applicable Portfolio(s), and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account of any
actions or omissions of any sub-custodian so employed than any such sub-
custodian has to the Custodian. The Custodian may employ as sub-custodian for
the Fund's foreign securities on behalf of the applicable Portfolio(s) the
foreign banking institutions and foreign securities depositories designated in
Schedule A hereto but only in accordance with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By the
------------------------------------------------------------------------
Custodian in the United States
------------------------------
2.1 Holding Investments. The Custodian shall hold and physically segregate for
-------------------
the account of each Portfolio all non-cash property, to be held by it in
the United States including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained pursuant to
Section 2.10 in a clearing agency which acts as a securities depository or
in a book-entry system authorized by the U.S. Department of the Treasury
and certain federal agencies, (each, a "U.S. Securities System") and (b)
commercial paper of an issuer for which State Street Bank and Trust Company
acts as issuing and paying agent ("Direct Paper") which is deposited and/or
maintained in the Direct Paper System of the Custodian (the "Direct Paper
System") pursuant to Section 2.11.
2.2 Delivery of Securities. The Custodian shall release and deliver domestic
----------------------
securities owned by a Portfolio held by the Custodian or in a Securities
System account of the Custodian or in the Custodian's Direct Paper book
entry system account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund on behalf of the applicable Portfolio,
which may be continuing instructions when deemed appropriate by the
parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and
receipt of payment therefor;
2
<PAGE>
2) Upon the receipt of payment in connection with any repurchase
agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a Securities System, in
accordance with the provisions of Section 2.10 hereof;
4) To the depository agent in connection with tender or other similar
offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called,
redeemed, retired or otherwise become payable; provided that, in any
such case, the cash or other consideration is to be delivered to the
Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian
or into the name or nominee name of any agent appointed pursuant to
Section 2.9 or into the name or nominee name of any sub-custodian
appointed pursuant to Article 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
--------
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to
the broker or its clearing agent, against a receipt, for examination
in accordance with "street delivery" custom; provided that in any such
case, the Custodian shall have no responsibility or liability for any
loss arising from the delivery of such securities prior to receiving
payment for such securities except as may arise from the Custodian's
own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the
securities of the issuer of such securities, or pursuant to provisions
for conversion contained in such securities, or pursuant to any
deposit agreement; provided that, in any such case, the new securities
and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender
thereof in the exercise of such warrants, rights or similar securities
or the surrender of interim receipts or temporary securities for
definitive securities; provided that, in any such case, the new
3
<PAGE>
securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the
Portfolio, but only against receipt of adequate collateral as agreed
--- ----
upon from time to time by the Custodian and the Fund on behalf of the
Portfolio, which may be in the form of cash or obligations issued by
the United States government, its agencies or instrumentalities,
except that in connection with any loans for which collateral is to be
credited to the Custodian's account in the book-entry system
authorized by the U.S. Department of the Treasury, the Custodian will
not be held liable or responsible for the delivery of securities owned
by the Portfolio prior to the receipt of such collateral;
11) For delivery as security in connection with any borrowings by the Fund
on behalf of the Portfolio requiring a pledge of assets by the Fund on
behalf of the Portfolio, but only against receipt of amounts borrowed;
--- ----
12) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian and a broker-dealer
registered under the Securities Exchange Act of 1934 (the "Exchange
Act") and a member of The National Association of Securities Dealers,
Inc. ("NASD"), relating to compliance with the rules of The Options
Clearing Corporation and of any registered national securities
exchange, or of any similar organization or organizations, regarding
escrow or other arrangements in connection with transactions by the
Portfolio of the Fund;
13) For delivery in accordance with the provisions of any agreement among
the Fund on behalf of the Portfolio, the Custodian, and a Futures
Commission Merchant registered under the Commodity Exchange Act,
relating to compliance with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Portfolio of the Fund;
14) Upon receipt of instructions from the transfer agent ("Transfer
Agent") for the Fund, for delivery to such Transfer Agent or to the
holders of shares in connection with distributions in kind, as may be
described from time to time in the currently effective prospectus and
statement of additional information of the Fund, related to the
Portfolio ("Prospectus"), in satisfaction of
4
<PAGE>
requests by holders of Shares for repurchase or redemption; and
15) For any other proper corporate purpose, but only upon receipt of, in
--- ----
addition to Proper Instructions from the Fund on behalf of the
applicable Portfolio, a certified copy of a resolution of the Board of
Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary,
specifying the securities of the Portfolio to be delivered, setting
forth the purpose for which such delivery is to be made, declaring
such purpose to be a proper corporate purpose, and naming the person
or persons to whom delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held by the Custodian
--------------------------
(other than bearer securities) shall be registered in the name of the
Portfolio or in the name of any nominee of the Fund on behalf of the
Portfolio or of any nominee of the Custodian which nominee shall be
assigned exclusively to the Portfolio, unless the Fund has authorized in
------
writing the appointment of a nominee to be used in common with other
registered investment companies having the same investment adviser as the
Portfolio, or in the name or nominee name of any agent appointed pursuant
to Section 2.9 or in the name or nominee name of any sub-custodian
appointed pursuant to Article 1. All securities accepted by the Custodian
on behalf of the Portfolio under the terms of this Contract shall be in
"street name" or other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the Custodian shall
utilize its best efforts only to timely collect income due the Fund on such
securities and to notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency of calls,
maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
-------------
account or accounts in the United States in the name of each Portfolio of
the Fund, subject only to draft or order by the Custodian acting pursuant
to the terms of this Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for the
account of the Portfolio, other than cash maintained by the Portfolio in a
bank account established and used in accordance with Rule 17f-3 under the
Investment Company Act of 1940. Funds held by the Custodian for a
Portfolio may be deposited by it to its credit as Custodian in the Banking
Department of the Custodian or in such other banks or trust companies as it
may in its discretion deem necessary or desirable; provided, however, that
--------
every such bank or trust company shall be qualified to act as a custodian
under the
5
<PAGE>
Investment Company Act of 1940 and that each such bank or trust company and
the funds to be deposited with each such bank or trust company shall on
behalf of each applicable Portfolio be approved by vote of a majority of
the Board of Trustees of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund on
-----------------------------
behalf of each applicable Portfolio and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund on behalf of a
Portfolio, make federal funds available to such Portfolio as of specified
times agreed upon from time to time by the Fund and the Custodian in the
amount of checks received in payment for Shares of such Portfolio which are
deposited into the Portfolio's account.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
--------------------
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which each
Portfolio shall be entitled either by law or pursuant to custom in the
securities business, and shall collect on a timely basis all income and
other payments with respect to bearer domestic securities if, on the date
of payment by the issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected, to such
Portfolio's custodian account. Without limiting the generality of the
foregoing, the Custodian shall detach and present for payment all coupons
and other income items requiring presentation as and when they become due
and shall collect interest when due on securities held hereunder. Income
due each Portfolio on securities loaned pursuant to the provisions of
Section 2.2 (10) shall be the responsibility of the Fund. The Custodian
will have no duty or responsibility in connection therewith, other than to
provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of
the income to which the Portfolio is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper Instructions from the Fund
----------------------
on behalf of the applicable Portfolio, which may be continuing instructions
when deemed appropriate by the parties, the Custodian shall pay out monies
of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures
6
<PAGE>
contracts to the Custodian (or any bank, banking firm or trust company
doing business in the United States or abroad which is qualified under
the Investment Company Act of 1940, as amended, to act as a custodian
and has been designated by the Custodian as its agent for this
purpose) registered in the name of the Portfolio or in the name of a
nominee of the Custodian referred to in Section 2.3 hereof or in
proper form for transfer; (b) in the case of a purchase effected
through a Securities System, in accordance with the conditions set
forth in Section 2.10 hereof; (c) in the case of a purchase involving
the Direct Paper System, in accordance with the conditions set forth
in Section 2.11; (d) in the case of repurchase agreements entered into
between the Fund on behalf of the Portfolio and the Custodian, or
another bank, or a broker-dealer which is a member of NASD, (i)
against delivery of the securities either in certificate form or
through an entry crediting the Custodian's account at the Federal
Reserve Bank with such securities or (ii) against delivery of the
receipt evidencing purchase by the Portfolio of securities owned by
the Custodian along with written evidence of the agreement by the
Custodian to repurchase such securities from the Portfolio or (e) for
transfer to a time deposit account of the Fund in any bank, whether
domestic or foreign; such transfer may be effected prior to receipt of
a confirmation from a broker and/or the applicable bank pursuant to
Proper Instructions from the Fund as defined in Article 5;
2) In connection with conversion, exchange or surrender of securities
owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued by the Portfolio as
set forth in Article 4 hereof;
4) For the payment of any expense or liability incurred by the Portfolio,
including but not limited to the following payments for the account of
the Portfolio: interest, taxes, management, accounting, transfer
agent and legal fees, and operating expenses of the Fund whether or
not such expenses are to be in whole or part capitalized or treated as
deferred expenses;
5) For the payment of any dividends on Shares of the Portfolio declared
pursuant to the governing documents of the Fund;
6) For payment of the amount of dividends received in respect of
securities sold short;
7
<PAGE>
7) For any other proper purpose, but only upon receipt of, in addition to
--- ----
Proper Instructions from the Fund on behalf of the Portfolio, a
certified copy of a resolution of the Board of Trustees or of the
Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the
amount of such payment, setting forth the purpose for which such
payment is to be made, declaring such purpose to be a proper purpose,
and naming the person or persons to whom such payment is to be made.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
-------------------------------------------------------------------
Except as specifically stated otherwise in this Contract, in any and every
case where payment for purchase of domestic securities for the account of a
Portfolio is made by the Custodian in advance of receipt of the securities
purchased in the absence of specific written instructions from the Fund on
behalf of such Portfolio to so pay in advance, the Custodian shall be
absolutely liable to the Fund for such securities to the same extent as if
the securities had been received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in its
---------------------
discretion appoint (and may at any time remove) any other bank or trust
company which is itself qualified under the Investment Company Act of 1940,
as amended, to act as a custodian, as its agent to carry out such of the
provisions of this Article 2 as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not relieve the
--------
Custodian of its responsibilities or liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may deposit
--------------------------------------------
and/or maintain securities owned by a Portfolio in a clearing agency
registered with the Securities and Exchange Commission under Section 17A of
the Securities Exchange Act of 1934, which acts as a securities depository,
or in the book-entry system authorized by the U.S. Department of the
Treasury and certain federal agencies, collectively referred to herein as
"Securities System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may keep securities of the Portfolio in a Securities
System provided that such securities are represented in an account
("Account") of the Custodian in the Securities System which shall not
include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
8
<PAGE>
2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a Securities System shall identify
by book-entry those securities belonging to the Portfolio;
3) The Custodian shall pay for securities purchased for the account of
the Portfolio upon (i) receipt of advice from the Securities System
that such securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Custodian to reflect such
payment and transfer for the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the Securities System that payment for such
securities has been transferred to the Account, and (ii) the making of
an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Portfolio. Copies of all advices from
the Securities System of transfers of securities for the account of
the Portfolio shall identify the Portfolio, be maintained for the
Portfolio by the Custodian and be provided to the Fund at its request.
Upon request, the Custodian shall furnish the Fund on behalf of the
Portfolio confirmation of each transfer to or from the account of the
Portfolio in the form of a written advice or notice and shall furnish
to the Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the Securities System for
the account of the Portfolio;
4) The Custodian shall provide the Fund for the Portfolio with any report
obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System;
5) The Custodian shall have received from the Fund on behalf of the
Portfolio the initial or annual certificate, as the case may be,
required by Article 14 hereof;
6) Anything to the contrary in this Contract notwithstanding, the
Custodian shall be liable to the Fund for the benefit of the Portfolio
for any loss or damage to the Portfolio resulting from use of the
Securities System by reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents or of any of its or
their employees or from failure of the Custodian or any such agent to
enforce effectively such rights as it may have against the Securities
System; at the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claim
against the
9
<PAGE>
Securities System or any other person which the Custodian may have as
a consequence of any such loss or damage if and to the extent that the
Portfolio has not been made whole for any such loss or damage.
2.11 Fund Assets Held in the Custodian's Direct Paper System. The Custodian may
--------------------------------------------------------
deposit and/or maintain securities owned by a Portfolio in the Direct Paper
System of the Custodian subject to the following provisions:
1) No transaction relating to securities in the Direct Paper System will
be effected in the absence of Proper Instructions from the Fund on
behalf of the Portfolio;
2) The Custodian may keep securities of the Portfolio in the Direct Paper
System only if such securities are represented in an account
("Account") of the Custodian in the Direct Paper System which shall
not include any assets of the Custodian other than assets held as a
fiduciary, custodian or otherwise for customers;
3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System shall
identify by book-entry those securities belonging to the Portfolio;
4) The Custodian shall pay for securities purchased for the account of
the Portfolio upon the making of an entry on the records of the
Custodian to reflect such payment and transfer of securities to the
account of the Portfolio. The Custodian shall transfer securities
sold for the account of the Portfolio upon the making of an entry on
the records of the Custodian to reflect such transfer and receipt of
payment for the account of the Portfolio;
5) The Custodian shall furnish the Fund on behalf of the Portfolio
confirmation of each transfer to or from the account of the Portfolio,
in the form of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the Fund on
behalf of the Portfolio copies of daily transaction sheets reflecting
each day's transaction in the Securities System for the account of the
Portfolio;
6) The Custodian shall provide the Fund on behalf of the Portfolio with
any report on its system of internal accounting control as the Fund
may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
------------------
Instructions from the Fund on behalf of each applicable Portfolio establish
and maintain a segregated account or
10
<PAGE>
accounts for and on behalf of each such Portfolio, into which account or
accounts may be transferred cash and/or securities, including securities
maintained in an account by the Custodian pursuant to Section 2.10 hereof,
(i) in accordance with the provisions of any agreement among the Fund on
behalf of the Portfolio, the Custodian and a broker-dealer registered under
the Exchange Act and a member of the NASD (or any futures commission
merchant registered under the Commodity Exchange Act), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Portfolio, (ii) for purposes of
segregating cash or government securities in connection with options
purchased, sold or written by the Portfolio or commodity futures contracts
or options thereon purchased or sold by the Portfolio, (iii) for the
purposes of compliance by the Portfolio with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or
releases of the Securities and Exchange Commission relating to the
maintenance of segregated accounts by registered investment companies and
(iv) for other proper corporate purposes, but only, in the case of clause
--- ----
(iv), upon receipt of, in addition to Proper Instructions from the Fund on
behalf of the applicable Portfolio, a certified copy of a resolution of the
Board of Trustees or of the Executive Committee signed by an officer of the
Fund and certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and declaring such
purposes to be proper corporate purposes.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
---------------------------------------
ownership and other certificates and affidavits for all federal and state
tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Portfolio held by it and in
connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities held
-------
hereunder, cause to be promptly executed by the registered holder of such
securities, if the securities are registered otherwise than in the name of
the Portfolio or a nominee of the Portfolio, all proxies, without
indication of the manner in which such proxies are to be voted, and shall
promptly deliver to the Portfolio such proxies, all proxy soliciting
materials and all notices relating to such securities.
2.15 Communications Relating to Portfolio Securities. Subject to the provisions
-----------------------------------------------
of Section 2.3, the Custodian shall transmit promptly to the Fund for each
Portfolio all written
11
<PAGE>
information (including, without limitation, pendency of calls and
maturities of domestic securities and expirations of rights in connection
therewith and notices of exercise of call and put options written by the
Fund on behalf of the Portfolio and the maturity of futures contracts
purchased or sold by the Portfolio) received by the Custodian from issuers
of the securities being held for the Portfolio. With respect to tender or
exchange offers, the Custodian shall transmit promptly to the Portfolio all
written information received by the Custodian from issuers of the
securities whose tender or exchange is sought and from the party (or his
agents) making the tender or exchange offer. If the Portfolio desires to
take action with respect to any tender offer, exchange offer or any other
similar transaction, the Portfolio shall notify the Custodian at least
three business days prior to the date on which the Custodian is to take
such action.
3. Duties of the Custodian with Respect to Property of the Fund Held Outside
-------------------------------------------------------------------------
of the United States
--------------------
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby authorizes and
-------------------------------------
instructs the Custodian to employ as sub-custodians for the Portfolio's
securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated
on Schedule A hereto ("foreign sub-custodians"). Upon receipt of "Proper
Instructions", as defined in Section 5 of this Contract, together with a
certified resolution of the Fund's Board of Trustees, the Custodian and the
Fund may agree to amend Schedule A hereto from time to time to designate
additional foreign banking institutions and foreign securities depositories
to act as sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such sub-
custodians for maintaining custody of the Portfolio's assets.
3.2 Assets to be Held. The Custodian shall limit the securities and other
-----------------
assets maintained in the custody of the foreign sub-custodians to: (a)
"foreign securities", as defined in paragraph (c)(1) of Rule 17f-5 under
the Investment Company Act of 1940, and (b) cash and cash equivalents in
such amounts as the Custodian or the Fund may determine to be reasonably
necessary to effect the Portfolio's foreign securities transactions. The
Custodian shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
--------------------------
writing by the Custodian and the Fund, assets of the Portfolios shall be
maintained in a clearing agency which acts as a securities depository or in
a book-entry system for the
12
<PAGE>
central handling of securities located outside of the United States (each a
"Foreign Securities System") only through arrangements implemented by the
foreign banking institutions serving as sub-custodians pursuant to the
terms hereof (Foreign Securities Systems and U.S. Securities Systems are
collectively referred to herein as the "Securities Systems"). Where
possible, such arrangements shall include entry into agreements containing
the provisions set forth in Section 3.5 hereof.
3.4 Holding Securities. The Custodian may hold securities and other non-cash
-------------------
property for all of its customers, including the Fund, with a Foreign Sub-
custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
----------------
records of the Custodian with respect to securities and other non-cash
property of the Fund which are maintained in such account shall identify by
book-entry those securities and other non-cash property belonging to the
Fund and (ii) the Custodian shall require that securities and other non-
cash property so held by the Foreign Sub-custodian be held separately from
any assets of the Foreign Sub-custodian or of others.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
--------------------------------------------
foreign banking institution shall be substantially in the form set forth in
Exhibit 1 hereto and shall provide that: (a) the assets of each Portfolio
will not be subject to any right, charge, security interest, lien or claim
of any kind in favor of the foreign banking institution or its creditors or
agent, except a claim of payment for their safe custody or administration;
(b) beneficial ownership for the assets of each Portfolio will be freely
transferable without the payment of money or value other than for custody
or administration; (c) adequate records will be maintained identifying the
assets as belonging to each applicable Portfolio; (d) officers of or
auditors employed by, or other representatives of the Custodian, including
to the extent permitted under applicable law the independent public
accountants for the Fund, will be given access to the books and records of
the foreign banking institution relating to its actions under its agreement
with the Custodian; and (e) assets of the Portfolios held by the foreign
sub-custodian will be subject only to the instructions of the Custodian or
its agents.
3.6 Access of Independent Accountants of the Fund. Upon request of the Fund,
---------------------------------------------
the Custodian will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of
any foreign banking institution employed as a foreign sub-custodian insofar
as such books and records relate to the performance of
13
<PAGE>
such foreign banking institution under its agreement with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time to
--------------------
time, as mutually agreed upon, statements in respect of the securities and
other assets of the Portfolio(s) held by foreign sub-custodians, including
but not limited to an identification of entities having possession of the
Portfolio(s) securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account maintained by
a foreign banking institution for the Custodian on behalf of each
applicable Portfolio indicating, as to securities acquired for a Portfolio,
the identity of the entity having physical possession of such securities.
3.8 Transactions in Foreign Custody Account. (a) Except as otherwise provided
---------------------------------------
in paragraph (b) of this Section 3.8, the provision of Sections 2.2 and 2.7
of this Contract shall apply, mutatis mutandis to the foreign securities of
------- --------
the Fund held outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of each
applicable Portfolio and delivery of securities maintained for the account
of each applicable Portfolio may be effected in accordance with the
customary established securities trading or securities processing practices
and procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign sub-custodian may be
maintained in the name of such entity's nominee to the same extent as set
forth in Section 2.3 of this Contract, and the Fund agrees to hold any such
nominee harmless from any liability as a holder of record of such
securities.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which the
-----------------------------------
Custodian employs a foreign banking institution as a foreign sub-custodian
shall require the institution to exercise reasonable care in the
performance of its duties and to indemnify, and hold harmless, the
Custodian and the Fund from and against any loss, damage, cost, expense,
liability or claim arising out of or in connection with the institution's
performance of such obligations. At the election of the Fund, it shall be
entitled to be subrogated to the rights of the Custodian with respect to
any claims against a foreign banking
14
<PAGE>
institution as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made
whole for any such loss, damage, cost, expense, liability or claim.
3.10 Liability of Custodian. The Custodian shall be liable for the acts or
----------------------
omissions of a foreign banking institution to the same extent as set forth
with respect to sub-custodians generally in this Contract and, regardless
of whether assets are maintained in the custody of a foreign banking
institution, a foreign securities depository or a branch of a U.S. bank as
contemplated by paragraph 3.13 hereof, the Custodian shall not be liable
for any loss, damage, cost, expense, liability or claim resulting from
nationalization, expropriation, currency restrictions, or acts of war or
terrorism or any loss where the sub-custodian has otherwise exercised
reasonable care. Notwithstanding the foregoing provisions of this
paragraph 3.10, in delegating custody duties to State Street London Ltd.,
the Custodian shall not be relieved of any responsibility to the Fund for
any loss due to such delegation, except such loss as may result from (a)
political risk (including, but not limited to, exchange control
restrictions, confiscation, expropriation, nationalization, insurrection,
civil strife or armed hostilities) or (b) other losses (excluding a
bankruptcy or insolvency of State Street London Ltd. not caused by
political risk) due to Acts of God, nuclear incident or other losses under
circumstances where the Custodian and State Street London Ltd. have
exercised reasonable care.
3.11 Reimbursement for Advances. If the Fund requires the Custodian to advance
--------------------------
cash or securities for any purpose for the benefit of a Portfolio including
the purchase or sale of foreign exchange or of contracts for foreign
exchange, or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this Contract, except
such as may arise from its or its nominee's own negligent action, negligent
failure to act or willful misconduct, any property at any time held for the
account of the applicable Portfolio shall be security therefor and should
the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's
assets to the extent necessary to obtain reimbursement.
3.12 Monitoring Responsibilities. The Custodian shall furnish annually to the
---------------------------
Fund, during the month of June, information concerning the foreign sub-
custodians employed by the Custodian. Such information shall be similar in
kind and scope to that furnished to the Fund in connection with the initial
approval of this Contract. In addition, the Custodian
15
<PAGE>
will promptly inform the Fund in the event that the Custodian learns of a
material adverse change in the financial condition of a foreign sub-
custodian or any material loss of the assets of the Fund or in the case of
any foreign sub-custodian not the subject of an exemptive order from the
Securities and Exchange Commission is notified by such foreign sub-
custodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below $200 million (U.S. dollars or the
equivalent thereof) or that its shareholders' equity has declined below
$200 million (in each case computed in accordance with generally accepted
U.S. accounting principles).
3.13 Branches of U.S. Banks. (a) Except as otherwise set forth in this
----------------------
Contract, the provisions hereof shall not apply where the custody of the
Portfolios assets are maintained in a foreign branch of a banking
institution which is a "bank" as defined by Section 2(a)(5) of the
Investment Company Act of 1940 meeting the qualification set forth in
Section 26(a) of said Act. The appointment of any such branch as a sub-
custodian shall be governed by paragraph 1 of this Contract.
(b) Cash held for each Portfolio of the Fund in the United Kingdom shall be
maintained in an interest bearing account established for the Fund with the
Custodian's London branch, which account shall be subject to the direction
of the Custodian, State Street London Ltd. or both.
3.14 Tax Law. The Custodian shall have no responsibility or liability for any
-------
obligations now or hereafter imposed on the Fund or the Custodian as
custodian of the Fund by the tax law of the United States of America or any
state or political subdivision thereof. It shall be the responsibility of
the Fund to notify the Custodian of the obligations imposed on the Fund or
the Custodian as custodian of the Fund by the tax law of jurisdictions
other than those mentioned in the above sentence, including responsibility
for withholding and other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole responsibility of the
Custodian with regard to such tax law shall be to use reasonable efforts to
assist the Fund with respect to any claim for exemption or refund under the
tax law of jurisdictions for which the Fund has provided such information.
4. Payments for Sales or Repurchases or Redemptions of Shares of the Fund
----------------------------------------------------------------------
The Custodian shall receive from the distributor for the Shares or from the
Transfer Agent of the Fund and deposit into the account of the appropriate
Portfolio such payments as are received
16
<PAGE>
for Shares of that Portfolio issued or sold from time to time by the Fund. The
Custodian will provide timely notification to the Fund on behalf of each such
Portfolio and the Transfer Agent of any receipt by it of payments for Shares of
such Portfolio.
From such funds as may be available for the purpose but subject to the
limitations of the Declaration of Trust and any applicable votes of the Board of
Trustees of the Fund pursuant thereto, the Custodian shall, upon receipt of
instructions from the Transfer Agent, make funds available for payment to
holders of Shares who have delivered to the Transfer Agent a request for
redemption or repurchase of their Shares. In connection with the redemption or
repurchase of Shares of a Portfolio, the Custodian is authorized upon receipt of
instructions from the Transfer Agent to wire funds to or through a commercial
bank designated by the redeeming shareholders. In connection with the
redemption or repurchase of Shares of the Fund, the Custodian shall honor checks
drawn on the Custodian by a holder of Shares, which checks have been furnished
by the Fund to the holder of Shares, when presented to the Custodian in
accordance with such procedures and controls as are mutually agreed upon from
time to time between the Fund and the Custodian.
5. Proper Instructions
-------------------
Proper Instructions as used throughout this Contract means a writing signed
or initialled by one or more person or persons as the Board of Trustees shall
have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if the Custodian reasonably believes them
to have been given by a person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral instructions to be
confirmed in writing. Upon receipt of a certificate of the Secretary or an
Assistant Secretary as to the authorization by the Board of Trustees of the Fund
accompanied by a detailed description of procedures approved by the Board of
Trustees, Proper Instructions may include communications effected directly
between electro-mechanical or electronic devices provided that the Board of
Trustees and the Custodian are satisfied that such procedures afford adequate
safeguards for the Portfolios' assets. For purposes of this Section, Proper
Instructions shall include instructions received by the Custodian pursuant to
any three - party agreement which requires a segregated asset account in
accordance with Section 2.12.
17
<PAGE>
6. Actions Permitted without Express Authority
-------------------------------------------
The Custodian may in its discretion, without express authority from the
Fund on behalf of each applicable Portfolio:
1) make payments to itself or others for minor expenses of handling
securities or other similar items relating to its duties under this
Contract, provided that all such payments shall be accounted for to
--------
the Fund on behalf of the Portfolio;
2) surrender securities in temporary form for securities in definitive
form;
3) endorse for collection, in the name of the Portfolio, checks, drafts
and other negotiable instruments; and
4) in general, attend to all non-discretionary details in connection with
the sale, exchange, substitution, purchase, transfer and other
dealings with the securities and property of the Portfolio except as
otherwise directed by the Board of Trustees of the Fund.
7. Evidence of Authority
---------------------
The Custodian shall be protected in acting upon any instructions, notice,
request, consent, certificate or other instrument or paper believed by it to be
genuine and to have been properly executed by or on behalf of the Fund. The
Custodian may receive and accept a certified copy of a vote of the Board of
Trustees of the Fund as conclusive evidence (a) of the authority of any person
to act in accordance with such vote or (b) of any determination or of any action
by the Board of Trustees pursuant to the Declaration of Trust as described in
such vote, and such vote may be considered as in full force and effect until
receipt by the Custodian of written notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account and Calculation of
---------------------------------------------------------------------------
Net Asset Value and Net Income
------------------------------
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the Board of Trustees of the Fund to keep the
books of account of each Portfolio and/or compute the net asset value per share
of the outstanding shares of each Portfolio or, if directed in writing to do so
by the Fund on behalf of the Portfolio, shall itself keep such books of account
and/or compute such net asset value per share. If so directed, the Custodian
shall also calculate daily the net income of the Portfolio as described in the
Fund's currently effective prospectus related to such Portfolio and shall advise
the Fund and
18
<PAGE>
the Transfer Agent daily of the total amounts of such net income and, if
instructed in writing by an officer of the Fund to do so, shall advise the
Transfer Agent periodically of the division of such net income among its various
components. The calculations of the net asset value per share and the daily
income of each Portfolio shall be made at the time or times described from time
to time in the Fund's currently effective prospectus related to such Portfolio.
9. Records
-------
The Custodian shall with respect to each Portfolio create and maintain all
records relating to its activities and obligations under this Contract in such
manner as will meet the obligations of the Fund under the Investment Company Act
of 1940, with particular attention to Section 31 thereof and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the Fund and shall
at all times during the regular business hours of the Custodian be open for
inspection by duly authorized officers, employees or agents of the Fund and
employees and agents of the Securities and Exchange Commission. The Custodian
shall, at the Fund's request, supply the Fund with a tabulation of securities
owned by each Portfolio and held by the Custodian and shall, when requested to
do so by the Fund and for such compensation as shall be agreed upon between the
Fund and the Custodian, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountant
----------------------------------------
The Custodian shall take all reasonable action, as the Fund on behalf of
each applicable Portfolio may from time to time request, to obtain from year to
year favorable opinions from the Fund's independent accountants with respect to
its activities hereunder in connection with the preparation of the Fund's Form
N-1A, and Form N-SAR or other annual reports to the Securities and Exchange
Commission and with respect to any other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants
-------------------------------------------------
The Custodian shall provide the Fund, on behalf of each of the Portfolios
at such times as the Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal accounting control and
procedures for safeguarding securities, futures contracts and options on futures
contracts, including securities deposited and/or maintained in a Securities
System, relating to the services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in sufficient detail, as may
reasonably be required by the Fund to
19
<PAGE>
provide reasonable assurance that any material inadequacies would be disclosed
by such examination, and, if there are no such inadequacies, the reports shall
so state.
12. Compensation of Custodian
-------------------------
The Custodian shall be entitled to reasonable compensation for its services
and expenses as Custodian, as agreed upon from time to time between the Fund on
behalf of each applicable Portfolio and the Custodian.
13. Responsibility of Custodian
---------------------------
So long as and to the extent that it is in the exercise of reasonable care,
the Custodian shall not be responsible for the title, validity or genuineness of
any property or evidence of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties, including any
futures commission merchant acting pursuant to the terms of a three-party
futures or options agreement. The Custodian shall be held to the exercise of
reasonable care in carrying out the provisions of this Contract, but shall be
kept indemnified by and shall be without liability to the Fund for any action
taken or omitted by it in good faith without negligence. It shall be entitled
to rely on and may act upon advice of counsel (who may be counsel for the Fund)
on all matters, and shall be without liability for any action reasonably taken
or omitted pursuant to such advice.
Except as may arise from the Custodian's own negligence or willful
misconduct or the negligence or willful misconduct of a sub-custodian or agent,
the Custodian shall be without liability to the Fund for any loss, liability,
claim or expense resulting from or caused by; (i) events or circumstances beyond
the reasonable control of the Custodian or any sub-custodian or Securities
System or any agent or nominee of any of the foregoing, including, without
limitation, nationalization or expropriation, imposition of currency controls or
restrictions, the interruuption, suspension or restriction of trading on or the
closure of any securities market, power or other mechanical or technological
failures or interruptions, computer viruses or communications disruptions, acts
of war or terrorism, riots, revolutions, work stoppages, natural disasters or
other similiar events or acts; (ii) errors by the Fund or the Investment Advisor
in their instructions to the Custodian provided such instructions have been in
accordance with this Contract; (iii) the insolvency of or acts or omissions by a
Securities System; (iv) any delay or failure of any broker, agent or
intermediary, central bank or other commercially prevalent
20
<PAGE>
payment or clearing system to deliver to the Custodian's sub-custodian or agent
securities purchased or in the remittance or payment made in connection with
securities sold; (v) any delay or failure of any company, corporation, or other
body in charge or registering or transferring securities in the name of the
Custodian, the Fund, the Custodian's sub-custodians, nominees or agents or
agents or any consequential losses arising out of such delay or failure to
transfer such securities including non-receipt of bonus, dividends and rights
and other accretions or benefits; (vi) delays or inability to perform its duties
due to any disorder in market infrastructure with respect to any particular
security or Securities System; and (vii) any provision of any present or future
law or regulation or order of the United States of America, or any state
thereof, or any other country, or political subdivision thereof or of any court
of competent jurisdiction.
The Custodian shall be liable for the acts or omissions of a foreign
banking institution to the same extent as set forth with respect to sub-
custodians generally in this Contract.
If the Fund on behalf of a Portfolio requires the Custodian to take any
action with respect to securities, which action involves the payment of money or
which action may, in the opinion of the Custodian, result in the Custodian or
its nominee assigned to the Fund or the Portfolio being liable for the payment
of money or incurring liability of some other form, the Fund on behalf of the
Portfolio, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents,
to advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) for
the benefit of a Portfolio including the purchase or sale of foreign exchange or
of contracts for foreign exchange or in the event that the Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses, assessments,
claims or liabilities in connection with the performance of this Contract,
except such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct, any property at any time held
for the account of the applicable Portfolio shall be security therefor and
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of such Portfolio's assets to
the extent necessary to obtain reimbursement.
In no event shall the Custodian be liable for indirect, special or
consequential damages.
21
<PAGE>
14. Effective Period, Termination and Amendment
-------------------------------------------
This Contract shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than thirty (30)
days after the date of such delivery or mailing; provided, however that the
--------
Custodian shall not with respect to a Portfolio act under Section 2.10 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Fund has approved the
initial use of a particular Securities System by such Portfolio, as required by
Rule 17f-4 under the Investment Company Act of 1940, as amended and that the
Custodian shall not with respect to a Portfolio act under Section 2.11 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees has approved the initial use of
the Direct Paper System by such Portfolio ; provided further, however, that the
-------- -------
Fund shall not amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the Declaration of
Trust, and further provided, that the Fund on behalf of one or more of the
Portfolios may at any time by action of its Board of Trustees (i) substitute
another bank or trust company for the Custodian by giving notice as described
above to the Custodian, or (ii) immediately terminate this Contract in the event
of the appointment of a conservator or receiver for the Custodian by the
Comptroller of the Currency or upon the happening of a like event at the
direction of an appropriate regulatory agency or court of competent
jurisdiction.
Upon termination of the Contract, the Fund on behalf of each applicable
Portfolio shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian
-------------------
If a successor custodian for the Fund, of one or more of the Portfolios
shall be appointed by the Board of Trustees of the Fund, the Custodian shall,
upon termination, deliver to such successor custodian at the office of the
Custodian, duly endorsed and in the form for transfer, all securities of each
applicable Portfolio then held by it hereunder and shall transfer to an account
of the successor custodian all of the securities of each such Portfolio held in
a Securities System.
If no such successor custodian shall be appointed, the Custodian shall, in
like manner, upon receipt of a certified copy
22
<PAGE>
of a vote of the Board of Trustees of the Fund, deliver at the office of the
Custodian and transfer such securities, funds and other properties in accordance
with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
the Custodian on or before the date when such termination shall become
effective, then the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company Act of 1940,
doing business in Boston, Massachusetts, of its own selection, having an
aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities, funds and other
properties held by the Custodian on behalf of each applicable Portfolio and all
instruments held by the Custodian relative thereto and all other property held
by it under this Contract on behalf of each applicable Portfolio and to transfer
to an account of such successor custodian all of the securities of each such
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Board of Trustees to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other properties and
the provisions of this Contract relating to the duties and obligations of the
Custodian shall remain in full force and effect.
16. Interpretive and Additional Provisions
--------------------------------------
In connection with the operation of this Contract, the Custodian and the
Fund on behalf of each of the Portfolios, may from time to time agree on such
provisions interpretive of or in addition to the provisions of this Contract as
may in their joint opinion be consistent with the general tenor of this
Contract. Any such interpretive or additional provisions shall be in a writing
signed by both parties and shall be annexed hereto, provided that no such
--------
interpretive or additional provisions shall contravene any applicable federal or
state regulations or any provision of the Declaration of Trust of the Fund. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Contract.
23
<PAGE>
17. Additional Funds
----------------
In the event that the Fund establishes one or more series of Shares in
addition to PACE Money Market Investments, PACE Government Securities Fixed
Income Investments, PACE Intermediate Fixed Income Investments, PACE Strategic
Fixed Income Investments, PACE Municipal Fixed Income Investments, PACE Global
Fixed Income Investments, PACE Large Company Value Equity Investments, PACE
Large Company Growth Equity Investments, PACE Small\Medium Company Value Equity
Investments, PACE Small\Medium Company Growth Equity Investments, PACE
International Equity Investments and PACE International Emerging Markets Equity
Investments with respect to which it desires to have the Custodian render
services as custodian under the terms hereof, it shall so notify the Custodian
in writing, and if the Custodian agrees in writing to provide such services,
such series of Shares shall become a Portfolio hereunder.
18. Massachusetts Law to Apply
--------------------------
This Contract shall be construed and the provisions thereof interpreted
under and in accordance with laws of The Commonwealth of Massachusetts.
19. Prior Contracts
---------------
This Contract supersedes and terminates, as of the date hereof, all prior
contracts between the Fund on behalf of each of the Portfolios and the Custodian
relating to the custody of the Fund's assets.
20. Shareholder Communications Election
-----------------------------------
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. In order to comply with
the rule, the Custodian needs the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position to requesting
companies whose securities the Fund owns. If the Fund tells the Custodian "no",
the Custodian will not provide this information to requesting companies. If the
Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting to disclosure
of this information for all securities owned by the Fund or any funds or
accounts established by the Fund. For the Fund's protection, the Rule prohibits
the requesting company from using the Fund's name and address for any purpose
other than
24
<PAGE>
corporate communications. Please indicate below whether the Fund consents or
objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [ ] The Custodian is not authorized to release the Fund's name,
address, and share positions.
25
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of the day of ,
199 .
ATTEST MANAGED ACCOUNTS SERVICES PORTFOLIO
TRUST
By
- ----------------------------- --------------------------------
ATTEST STATE STREET BANK AND TRUST COMPANY
By
- ----------------------------- --------------------------------
Executive Vice President
26
<PAGE>
Schedule A
----------
The following foreign banking institutions and foreign securities
depositories have been approved by the Board of Trustees of Managed Accounts
Services Portfolio Trust for use as sub-custodians for the Fund's securities and
other assets:
(Insert banks and securities depositories)
Certified:
- -----------------------------
Fund's Authorized Officer
Date: _______________________
27
<PAGE>
EXHIBIT 99.9
TRANSFER AGENCY SERVICES AND SHAREHOLDER SERVICES AGREEMENT
TERMS AND CONDITIONS
This Agreement is made as of ___________________, 1995, to be effective as
of such date as is agreed to in writing by the parties, by and between MANAGED
ACCOUNTS SERVICES PORTFOLIO TRUST (the "Fund"), a Maryland corporation and PFPC
INC. ("PFPC"), a Delaware corporation, which is an indirect wholly-owned
subsidiary of PNC Bank Corp.
The Fund is registered as an open-end management series investment company
under the Investment Company Act of 1940, as amended ("1940 Act"). The Fund
wishes to retain PFPC to serve as the transfer agent, registrar, dividend
disbursing agent and shareholder servicing agent for such portfolios as are
listed in Appendix B to this agreement, as such Appendix B may be amended from
time to time (the "Portfolios"), and PFPC wishes to furnish such services.
In consideration of the promises and mutual covenants herein contained, the
parties agree as follows:
1. Definitions.
-----------
(a) "Authorized Person". The term "Authorized Person" shall mean any
-------------------
officer of the Fund and any other person who is duly authorized by the Fund's
Governing Board to give Oral and Written Instructions on behalf of the Fund.
Such persons are listed in the Certificate attached hereto as the Authorized
Persons Appendix or any amendment thereto as may be received by PFPC from time
to time.
<PAGE>
If PFPC provides more than one service hereunder, the Fund's designation of
Authorized Persons may vary by service.
(b) "Governing Board". The term "Governing Board" shall mean the Fund's
-----------------
Board of Directors if the Fund is a corporation or the Fund's Board of Trustees
if the Fund is a trust, or, where duly authorized, a competent committee
thereof.
(c) "Oral Instructions". The term "Oral Instructions" shall mean oral
-------------------
instructions received by PFPC from an Authorized Person by telephone or in
person.
(d) "SEC". The term "SEC" shall mean the Securities and Exchange
-----
Commission.
(e) "Securities Laws". The term "Securities Laws" shall mean the 1933 Act,
-----------------
the 1934 Act and the 1940 Act. The terms the "1933 Act" shall mean the
Securities Act of 1933, a amended, and the "1934 Act" shall mean the Securities
Exchange Act of 1934, a amended.
(f) "Shares". The term "Shares" shall mean the shares of beneficial
--------
interest of any Portfolio or class of the Fund.
(g) "Written Instructions". The term "Written Instructions" shall mean
----------------------
written instructions signed by one Authorized Person and received by PFPC. The
instructions may be delivered by hand, mail, tested telegram, cable, telex or
facsimile sending device.
2. Appointment. The Fund hereby appoints PFPC to serve as transfer agent,
-----------
registrar, dividend disbursing agent and shareholder servicing agent to each of
its Portfolio, in accordance
2
<PAGE>
with the terms set forth in this Agreement, and PFPC accepts such appointment
and agrees to furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable,
---------------------
will provide PFPC with the following:
(a) Certified or authenticated copies of the resolutions of the Fund's
Governing Board, approving the appointment of PFPC to provide services to each
Portfolio and approving this agreement;
(b) A copy of the Fund's most recent Post-Effective Amendment to its
Registration Statement on Form N-1A under the 1933 Act and 1940 Act as filed
with the SEC;
(c) A copy of the Fund's investment advisory and administration agreement
or agreements;
(d) A copy of the Fund's distribution agreement or agreements;
(e) Copies of any shareholder servicing agreements made in respect of the
Fund; and
(f) Copies of any and all amendments or supplements to the foregoing.
4. Compliance with Government Rules and Regulations. PFPC undertakes to
------------------------------------------------
comply with all applicable requirements of the Securities Laws, and any laws,
rules and regulations of governmental authorities having jurisdiction with
respect to all duties to be performed by PFPC hereunder. Except as specifically
set forth herein, PFPC assumes no responsibility for such compliance by the
Fund.
3
<PAGE>
5. Instructions. Unless otherwise provided in this Agreement, PFPC shall
------------
act only upon Oral and Written Instructions. PFPC shall be entitled to rely
upon any Oral and Written Instruction it receives from an Authorized Person
pursuant to this Agreement. PFPC may assume that any Oral or Written
Instruction received hereunder is not in any way inconsistent with the
provisions of organizational documents or of any vote, resolution or proceeding
of the Fund's Governing Board or of the Fund's shareholders, unless and until it
receives Written Instructions to the contrary.
The Fund agrees to forward to PFPC Written Instructions confirming Oral
Instructions so that PFPC receives the Written Instructions by the close of
business on the next business day after such Oral Instructions are received. The
fact that such confirming Written Instructions are not received by PFPC shall in
no way invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral or Written Instructions
reasonably appear to have been received from an Authorized Person, PFPC shall
incur no liability to the Fund in acting upon such instructions provided that
PFPC's actions comply with the other provisions of this Agreement.
6. Right to Receive Advice.
-----------------------
(a) Advice of the Fund. If PFPC is in doubt as to any action it should or
------------------
should not take, PFPC will request directions or advice, including Oral or
Written Instructions, from the Fund.
4
<PAGE>
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of law
-----------------
pertaining to any action it should or should not take, PFPC may request advice
at its own cost from such counsel of its own choosing (who may be counsel for
the Fund, the Fund's investment adviser or PFPC, at the option of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
------------------
advice or Oral or Written Instructions PFPC receives from the Fund and the
advice it receives from counsel, PFPC may rely upon and follow the advice of
counsel. In the event PFPC so relies on the advice of counsel, PFPC remains
liable for any action or omission on the part of PFPC which constitutes willful
misfeasance, bad faith, negligence or reckless disregard by PFPC of any duties,
obligations or responsibilities provided for in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes or
------------------
does not take in reliance upon directions, advice or Oral or Written
Instructions it receives from the Fund or from counsel in accordance with this
Agreement and which PFPC believes, in good faith, to be consistent with those
directions, advice or Oral or Written Instructions.
Nothing in this paragraph shall be construed to impose an obligation upon
PFPC (i) to seek such directions, advice or Oral or Written Instructions, or
(ii) to act in accordance with such directions, advice or Oral or Written
Instructions unless, under the terms of other provisions of this Agreement, the
same is a condition of PFPC's properly taking or not taking such action.
5
<PAGE>
Nothing in this subsection shall excuse PFPC when an action or omission on the
part of PFPC constitutes willful misfeasance, bad faith, negligence or reckless
disregard of PFPC of any duties, obligations or responsibilities provided for in
this Agreement.
7. Records and Visits. PFPC shall prepare and maintain in complete and
------------------
accurate form all books and records necessary for it to serve as transfer agent,
registrar, dividend disbursing agent and shareholder servicing agent to the
Fund, including (a) all those records required to be prepared and maintained by
the Fund under the 1940 Act, by other applicable Securities Laws, rules and
regulations and by state laws and (b) such books and records as are necessary
for PFPC to perform all of the services it agrees to provide in this Agreement
and the appendices attached hereto, including but not limited to the books and
records necessary to effect the conversion of Class B Shares, the calculation of
any contingent deferred sales charges and the calculation of front-end sales
charges. The books and records pertaining to the Fund which are in the
possession, or under the control, of PFPC shall be the property of the Fund.
The Fund or the Fund's Authorized Persons shall have access to such books and
records at all times during PFPC's normal business hours. Upon the reasonable
request of the Fund, copies of any such books and records shall be provided by
PFPC to the Fund or to an Authorized Person of the Fund. Upon reasonable notice
by the Fund, PFPC shall make available during regular business hours its
facilities and premises employed in connection with its performance of this
Agreement for reasonable
6
<PAGE>
visits by the Fund, any agent or person designated by the Fund or any regulatory
agency having authority over the Fund.
8. Confidentiality. PFPC agrees on its own behalf and that of its
---------------
employees to keep confidential all records of the Fund and information relating
to the Fund and its shareholders (past, present and future), its investment
adviser and its principal underwriter, unless the release of such records or
information is otherwise consented to, in writing, by the Fund prior to its
release. The Fund agrees that such consent shall not be unreasonably withheld,
and may not be withheld where PFPC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. Cooperation with Accountants. PFPC shall cooperate with the Fund's
----------------------------
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to such accountants for the expression of their
opinion, as required by the Fund.
10. Disaster Recovery. PFPC shall enter into and shall maintain in effect
-----------------
with appropriate parties one or more agreements making reasonable provision for
periodic backup of computer files and data with respect to the Fund and
emergency use of electronic data processing equipment. In the event of
equipment failures, PFPC shall, at no additional expense to the Fund, take all
reasonable steps to minimize service interruptions. PFPC shall
7
<PAGE>
have no liability with respect to the loss of data or service interruptions
caused by equipment failures, provided such loss or interruption is not caused
by the negligence of PFPC and provided further that PFPC has complied with the
provisions of this Paragraph 10.
11. Compensation. As compensation for services rendered by PFPC during
------------
the term of this Agreement, the Fund will pay to PFPC a fee or fees as may be
agreed to, from time to time, in writing by the Fund and PFPC.
12. Indemnification.
---------------
(a) The Fund agrees to indemnify and hold harmless PFPC and its nominees
from all taxes, charges, expenses, assessments, claims and liabilities
(including, without limitation, liabilities arising under the Securities Laws,
and any state and foreign securities and blue sky laws, and amendments thereto),
and expenses, including, without limitation, reasonable attorneys' fees and
disbursements arising directly or indirectly from any action or omission to act
which PFPC (i) at the request of or on the direction of or in reliance on the
advice of the Fund or (ii) upon Oral or Written Instructions. Neither PFPC, nor
any of its nominees, shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's or its nominees' own willful
misfeasance, bad faith, negligence or reckless disregard of its duties and
obligations under this Agreement.
8
<PAGE>
(b) PFPC agrees to indemnify and hold harmless the Fund from all taxes,
charges, expenses, assessments, claims and liabilities arising from PFPC's
obligations pursuant to this Agreement (including, without limitation,
liabilities arising under the Securities Laws, and any state and foreign
securities and blue sky laws, and amendments thereto) and expenses, including,
without limitation, reasonable attorneys' fees and disbursements, arising
directly or indirectly out of PFPC's or its nominee's own willful misfeasance,
bad faith, negligence or reckless disregard of its duties and obligations under
this Agreement.
(c) In order that the indemnification provisions contained in this
Paragraph 12 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
13. Insurance. PFPC shall maintain insurance of the types and in the
---------
amounts deemed by it to be appropriate. To the extent that policies of
insurance may provide for coverage of claims for liability or indemnity by the
parties set forth in this Agreement,
9
<PAGE>
the contracts of insurance shall take precedence, and no provision of this
Agreement shall be construed to relieve an insurer of any obligation to pay
claims to the Fund, PFPC or other insured party which would otherwise be a
covered claim in the absence of any provision of this Agreement.
14. Security. PFPC represents and warrants that, to the best of its
--------
knowledge, the various procedures and systems which PFPC has implemented with
regard to the safeguarding from loss or damage attributable to fire, theft or
any other cause (including provision for twenty-four hours a day restricted
access) of the Fund's blank checks, certificates, records and other data and
PFPC's equipment, facilities and other property used in the performance of its
obligations hereunder are adequate, and that it will make such changes therein
from time to time as in its judgment are required for the secure performance of
its obligations hereunder. PFPC shall review such systems and procedures on a
periodic basis and the Fund shall have access to review these systems and
procedures.
15. Responsibility of PFPC. PFPC shall be under no duty to take any
----------------------
action on behalf of the Fund except as specifically set forth herein or as may
be specifically agreed to by PFPC in writing. PFPC shall be obligated to
exercise due care and diligence in the performance of its duties hereunder, to
act in good faith and to use its best efforts in performing services provided
for under this Agreement. PFPC shall be liable only for any damages arising out
of or in connection with PFPC's performance of or omission or failure to perform
its duties under this
10
<PAGE>
Agreement to the extent such damages arise out of PFPC's negligence, reckless
disregard of its duties, bad faith or willful misfeasance.
Without limiting the generality of the foregoing or of any other provision
of this Agreement, PFPC, in connection with its duties under this Agreement,
shall not be under any duty or obligation to inquire into and shall not be
liable for (a) the validity or invalidity or authority or lack thereof of any
Oral or Written Instruction, notice or other instrument which conforms to the
applicable requirements of this Agreement, and which PFPC reasonably believes to
be genuine; or (b) subject to the provisions of Paragraph 10, delays or errors
or loss of data occurring by reason of circumstances beyond PFPC's control,
including acts of civil or military authority, national emergencies, labor
difficulties, fire, flood or catastrophe, acts of God, insurrection, war, riots
or failure of the mails, transportation, communication or power supply.
16. Description of Services. PFPC shall perform the duties of the
-----------------------
transfer agent, registrar, dividend disbursing agent and shareholder servicing
agent of the Fund and its specified Portfolio.
(a) Purchase of Shares. PFPC shall issue and credit an account of an
------------------
investor in the manner described in each Portfolio's prospectus once it
receives:
(i) A purchase order;
(ii) Proper information to establish a shareholder account; and
11
<PAGE>
(iii) Confirmation of receipt or crediting of funds for such order
from the Funds' custodian.
(b) Redemption of Shares. PFPC shall redeem a Portfolios' Shares only
--------------------
if that function is properly authorized by the Fund's organizational documents
or resolution of the Fund's Governing Board. Shares shall be redeemed and
payment therefor shall be made in accordance with each Portfolios' prospectus
when the shareholder tenders his or her Shares in proper form and directs the
method of redemption.
(c) Dividends and Distributions. Upon receipt of a resolution of the
---------------------------
Fund's Governing Board authorizing the declaration and payment of dividends and
distributions, PFPC shall issue dividends and distributions declared by the Fund
in Shares, or, upon shareholder election, pay such dividends and distributions
in cash if provided for in each Portfolios' prospectus. Such issuance or
payment, as well as payments upon redemption as described above, shall be made
after deduction and payment of the required amount of funds to be withheld in
accordance with any applicable tax law or other laws, rules or regulations.
PFPC shall mail to each Portfolios' shareholders such tax forms and other
information, or permissible substitute notice, relating to dividends and
distributions paid by the Fund as are required to be filed and mailed by
applicable law, rule or regulation.
PFPC shall prepare, maintain and file with the IRS and other appropriate
taxing authorities reports relating to all dividends
12
<PAGE>
above a stipulated amount paid by the Fund to its shareholders as required by
tax or other law, rule or regulation.
(d) PFPC will provide the services listed on Appendix A on an
ongoing basis. Performance of certain of these services, with accompanying
responsibilities and liabilities, may be delegated and assigned to PaineWebber
Incorporated or Mitchell Hutchins Asset Management Inc. or to an affiliated
person of either.
17. Duration and Termination.
------------------------
(a) This Agreement shall continue until January 30, 1997 and shall
automatically be renewed thereafter on a year-to-year basis and with respect to
the year-to-year renewal, provided that the Fund's Governing Board approves such
renewal; and provided further that this Agreement may be terminated by either
party for cause.
(b) With respect to the Fund, cause includes, but is not limited to:
(i) PFPC's material breach of this Agreement causing it to fail to substantially
perform its duties under this Agreement. In order for such material breach to
constitute "cause" under this Paragraph, PFPC must receive written notice from
the Fund specifying the material breach and PFPC shall not have corrected such
breach within a 15-day period; (ii) financial difficulties of PFPC evidenced by
the authorization or commencement of a voluntary or involuntary bankruptcy under
the U.S. Bankruptcy Code or any applicable bankruptcy or similar law, or under
any applicable law of any jurisdiction relating to the liquidation or
13
<PAGE>
reorganization of debt, the appointment of a receiver or to the modification or
alleviation of the rights of creditors; and (iii) issuance of an administrative
or court order against PFPC with regard to the material violation or alleged
material violation of the Securities Laws or other applicable laws related to
its business of performing transfer agency services.
(c) With respect to PFPC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement.
(d) Any notice of termination for cause in conformity with
subparagraphs (a), (b) and (c) of this Paragraph by the Fund shall be effective
thirty (30) days from the date of such notice. Any notice of termination for
cause by PFPC shall be effective 90 days from the date of such notice.
(e) Upon the termination hereof, the Fund shall pay to PFPC such
compensation as may be due for the period prior to the date of such termination.
In the event that the Fund designates a successor to any of PFPC's obligations
under this Agreement, PFPC shall, at the direction and expense of the Fund,
transfer to such successor all relevant books, records and other data
established or maintained by PFPC hereunder including a certified list of the
shareholders of each Portfolio of the Fund with name, address, and if provided
taxpayer identification or Social Security number, and a complete record of the
account of each shareholder. To the extent that PFPC incurs expenses related to
a transfer of responsibilities to a successor, other than expenses involved in
14
<PAGE>
PFPC's providing the Fund's books and records to the successor, PFPC shall be
entitled to be reimbursed for such expenses, including any out-of-pocket
expenses reasonably incurred by PFPC in connection with the transfer.
(f) Any termination effected pursuant to this Paragraph shall not
affect the rights and obligations of the parties under Paragraph 12 hereof.
(g) Notwithstanding the foregoing, this Agreement shall terminate with
respect to the Fund and any Portfolio thereof upon the liquidation, merger or
other dissolution of the Fund or Portfolio or upon the Fund's ceasing to be
registered investment company.
19. Registration as a Transfer Agent. PFPC represents that it is
--------------------------------
currently registered with the appropriate federal agency for the registration of
transfer agents, or is otherwise permitted to lawfully conduct its activities
without such registration and that it will remain so registered for the duration
of this Agreement. PFPC agrees that it will promptly notify the Fund in the
event of any material change in its status as a registered transfer agent.
Should PFPC fail to be registered with the SEC as a transfer agent at any time
during this Agreement, and such failure to register does not permit PFPC to
lawfully conduct its activities, the Fund may terminate this Agreement upon five
days written notice to PFPC.
20. Notices. All notices and other communications, other than Oral or
-------
Written Instructions, shall be in writing or by confirming telegram, cable,
telex or facsimile sending device.
15
<PAGE>
Notice shall be addressed (a) if to PFPC at PFPC's address, 400 Bellevue
Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at 20 Exchange Place,
New York, N.Y. 10005; or (c) if to neither of the foregoing, at such other
address as shall have been notified to the sender of any such notice or other
communication. If the notice is sent by confirming telegram, cable telex or
facsimile sending device during regular business hours, it shall be deemed to
have been given immediately. If sent during a time other than regular business
hours, such notice shall be deemed to have been given at the opening of the next
business day. If notice is sent by first-class mail, it shall be deemed to have
been given three business days after it has been mailed. If notice is sent by
messenger, it shall be deemed to have been given on the day it is delivered.
All postage, cable, telegram, telex and facsimile sending device charges arising
from the sending of a notice hereunder shall be paid by the sender.
21. Amendments. This Agreement, or any term thereof, may be changed or
----------
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
22. Additional Portfolio. In the event that the Fund establishes one or
--------------------
more investment Portfolio in addition to and with respect to which it desires to
have PFPC render services as transfer agent, registrar, dividend disbursing
agent and shareholder servicing agent under the terms set forth in this
Agreement, it shall so notify PFPC in writing, and PFPC shall agree in writing
to provide such services, and such investment Portfolio
16
<PAGE>
shall become a Fund hereunder, subject to such additional terms, fees and
conditions as are agreed to by the parties.
23. Assignment and Delegation.
-------------------------
(a) PFPC may, at its owns expense, assign its rights and delegate its
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association or PNC Bank Corp., provided that (i) PFPC gives the Fund
thirty (30) days' prior written notice; (ii) the delegate agrees with PFPC to
comply with all relevant provisions of the Securities Laws; and (iii) PFPC and
such delegate promptly provide such information as the Fund may request and
respond to such questions as the Fund may ask relating to the delegation,
including, without limitation, the capabilities of the delegate. The assignment
and delegation of any of PFPC's duties under this subparagraph (a) shall not
relieve PFPC of any of its responsibilities or liabilities under this Agreement.
(b) PFPC may assign its rights and delegate its duties hereunder to
PaineWebber Incorporated or Mitchell Hutchins Asset Management Inc. or
affiliated person of either provided that (i) PFPC gives the Fund thirty (30)
days' prior written notice; (ii) the delegate agrees to comply with all relevant
provisions of the Securities Laws; and (iii) PFPC and such delegate promptly
provide such information as the Fund may request and respond to such questions
as the Fund may ask relative to the delegation, including, without limitation,
the capabilities of the delegate. In assigning its rights and delegating its
duties under this paragraph, PFPC may impose such conditions or limitations as
it
17
<PAGE>
determines appropriate including the condition that PFPC be retained as a sub-
transfer agent.
(c) In the event that PFPC assigns its rights and delegates its duties
under this section, no amendment of the terms of this Agreement shall become
effective without the written consent of PFPC.
24. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
25. Further Actions. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
26. Limitation of Liability. Notice is hereby given that this Agreement
-----------------------
is executed on behalf of the Fund and that the obligations of this instrument
are not binding upon any of the directors, officers or shareholders individually
but are binding only upon the assets and property of the Fund. PFPC agrees
that, in asserting any rights or claims under this Agreement, it shall look only
to the assets and property of the Fund or the particular Portfolio of the Fund
in settlement of such right or claims, and not to such directors, officers or
shareholders.
27. Miscellaneous. This Agreement embodies the entire agreement and
-------------
understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to
18
<PAGE>
services to be performed and compensation to be paid under this Agreement.
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or otherwise
affect their construction or effect.
This Agreement shall be deemed to be a contract made in Delaware and
governed by Delaware Law, except that, to the extent provision of the Securities
Laws govern the subject matter of this Agreement, such Securities Laws will
controlling. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding and inure to the
benefit of the parties hereto and their respective successors and assigns.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below on the day and year first above
written.
PFPC INC.
By:_______________________________
MANAGED ACCOUNTS SERVICES PORTFOLIO TRUST
By:_______________________________
20
<PAGE>
APPENDIX A
Description of Services
-----------------------
(a) Services Provided on an Ongoing Basis by PFPC to the Fund, If
-------------------------------------------------------------
Applicable.
----------
(i) Calculate 12b-1 payments and broker trail commissions;
(ii) Develop, monitor and maintain all systems necessary to implement
and operate the three-tier distribution system, including Class B
conversion feature, as described in the registration statement
and related documents of the Fund, as they may be amended from
time to time;
(iii) Calculate contingent deferred sales charge amounts upon
redemption of Fund Shares and deduct such amounts from redemption
proceeds;
(iv) Calculate front-end sales load amounts at time of purchase of
Shares;
(v) Determine dates of Class B conversion and effect same;
(vi) Establish and maintain proper shareholder registrations, unless
requested by the Fund;
(vii) Review new applications with correspondence to shareholders to
complete or correct information;
(viii) Direct payment processing of checks or wires;
(ix) Prepare and certify stockholder lists in conjunction with proxy
solicitations;
(x) Countersign share certificates;
(xi) Prepare and mail to shareholders confirmation of activity;
(xii) Provide toll-free lines for direct shareholder use, plus customer
liaison staff for on-line inquiry response;
(xiii) Send duplicate confirmations to broker-dealers of their clients'
activity, whether executed through the broker-dealer or directly
with PFPC;
A-1
<PAGE>
(xiv) Provide periodic shareholder lists, outstanding share
calculations and related statistics to the Fund;
(xv) Provide detailed data for underwriter/broker confirmations;
(xvi) Periodic mailing of year-end tax and statement information;
(xvii) Notify on a daily basis the investment advisor, accounting agent,
and custodian of fund activity; and
(xviii) Perform other participating broker-dealer shareholder services as
may be agreed upon from time to time.
(b) Services Provided by PFPC Under Oral or Written Instructions of the
-------------------------------------------------------------------
Fund.
----
(i) Accept and post daily Portfolio and class purchases and
redemptions;
(ii) Accept, post and perform shareholder transfers and exchanges;
(iii) Pay dividends and other distributions;
(iv) Solicit and tabulate proxies; and
(v) Issue and cancel certificates.
(c) Shareholder Account Services.
----------------------------
(i) PFPC may arrange, in accordance with the Portfolios' prospectus,
for issuance of Shares obtained through:
. The transfer of funds from shareholders' account at
financial institutions; and
. Any pre-authorized check plan.
(ii) PFPC, if requested, shall arrange for a shareholder's:
. Exchange of Shares for shares of a fund for which the Fund
has exchange privileges;
A-2
<PAGE>
. Systematic withdrawal from an account where that shareholder
participates in a systematic withdrawal plan; and/or
. Redemption of Shares from an account with a checkwriting
privilege.
(d) Communications to Shareholders. Upon timely written instructions,
------------------------------
PFPC shall mail all communications by the Fund to its shareholders,
including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of fund Shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
If requested by the Fund, PFPC will receive and tabulate the proxy cards
for the meetings of the Fund's shareholders and supply personnel to serve
as inspectors of election.
(e) Records. PFPC shall maintain records of the accounts for each
-------
shareholder showing the following information:
(i) Name, address and United States Tax Identification or Social
Security number;
(ii) Number and class of Shares held and number and class of Shares
for which certificates, if any, have been issued, including
certificate numbers and denominations;
(iii) Historical information regarding the account of each shareholder,
including dividends and distributions paid and the date and price
for all transactions on a shareholder's account;
(iv) Any stop or restraining order placed against a shareholder's
account;
(v) Any correspondence relating to the current maintenance of a
shareholder's account;
(vi) Information with respect to withholdings; and
A-3
<PAGE>
(vii) Any information required in order for the transfer agent to
perform any calculations contemplated or required by this
Agreement.
(f) Lost or Stolen Certificates. PFPC shall place a stop notice against
---------------------------
any certificate reported to be lost or stolen and comply with all
applicable federal regulatory requirements for reporting such loss or
alleged misappropriation.
A new certificate shall be registered and issued upon:
(i) Shareholder's pledge of a lost instrument bond or such other and
appropriate indemnity bond issued by a surety company approved by
PFPC; and
(ii) Completion of a release and indemnification agreement signed by
the shareholder to protect PFPC.
(g) Shareholder Inspection of Stock Records. Upon requests from Fund
---------------------------------------
shareholders to inspect stock records, PFPC will notify the Fund and
require instructions granting or denying such request prior to taking
any action. Unless PFPC has acted contrary to the Fund's
instructions, the Fund agrees to release PFPC from any liability for
refusal of permission for a particular shareholder to inspect the
Fund's shareholder records.
A-4
<PAGE>
APPENDIX B
PACE Money Market Investments
PACE Government Securities Fixed Income Investments
PACE Intermediate Fixed Income Investments
PACE Strategic Fixed Income Investments
PACE Municipal Fixed Income Investments
PACE Global Fixed Income Investments
PACE Large Capitalization Growth Equity Investments
PACE Small/Medium Capitalization Value Equity Investments
PACE Small/Medium Capitalization Growth Equity Investments
PACE International Equity Investments
PACE International Emerging Markets Equity Investments
<PAGE>
EXHIBIT 10
LETTERHEAD OF KIRKPATRICK & LOCKHART
June 19, 1995
Managed Accounts Services Portfolio Trust
1285 Avenue of the Americas
New York, New York 10019
Dear Sir or Madam:
Managed Accounts Services Portfolio Trust ("Trust") is a business trust
organized under the laws of the State of Delaware and governed by a
Certificate of Trust dated September 9, 1994, as amended December 9, 1994, and a
Trust Instrument dated September 9, 1994 and amended June 9, 1995.
You have requested our opinion regarding certain matters in connection with
the Trust's issuance of shares of beneficial interest ("Shares") in the series
designated as PACE Money Market Investments, PACE Government Securities Fixed
Income Investments, PACE Intermediate Fixed Income Investments, PACE Strategic
Fixed Income Investments, PACE Municipal Fixed Income Investments, PACE Global
Fixed Income Investments, PACE Large Company Growth Equity Investments, PACE
Small/Medium Company Value Equity Investments, PACE Small/Medium Growth
Equity Investments, PACE International Equity Investments and PACE International
Emerging Markets Equity Investments.
We have, as counsel, participated in various corporate and other proceedings
relating to the Trust. We have examined copies, either certified or otherwise
proved to be genuine, of the Trust's Trust Instrument and By-Laws, and other
documents relating to its organization and operation, and we are generally
familiar with its business affairs. With respect to all matters concerning
Delaware law, we have relied solely on the opinion of Messrs. Richards, Layton
& Finger, local counsel to the Trust, an executed copy of which is amended
hereto as Exhibit A.
Based upon the foregoing, it is our opinion that the unlimited number of
Shares that are currently being registered may be legally and validly issued
in accordance with the
<PAGE>
KIRKPATRICK & LOCKHART
Managed Accounts Services Portfolio Trust
June 19, 1995
Page 2
Trust's Trust Instrument and By-Laws and subject to compliance with the
Securities Act of 1933, the Investment Company Act of 1940 and applicable state
laws regulating the offer and sale of securities; and, when so issued, the
Shares will be legally issued, fully paid and non-assessable by the Trust.
We hereby consent to the filing of this opinion in connection with
Pre-Effective Amendment No. 2 to the Trust's Registration Statement on
Form N-1A (File No. 33-87254) to be filed with the Securities and Exchange
Commission. We also consent to the reference to our firm under the
caption "Counsel" in the Statement of Additional Information filed as part
of Pre-Effective Amendment No. 2 to the Trust's Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART
/s/Arthur J. Brown
--------------------------------
Arthur J. Brown
Enclosure
<PAGE>
June 19, 1995
Managed Accounts Services Portfolio Trust
1285 Avenue of the Americas
New York, NY 10019
Re: Painewebber Incorporated/Managed Accounts Services Portfolio Trust
------------------------------------------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel to Managed Accounts Services
Portfolio Trust, a Delaware business trust (the "Trust") in connection with the
matters set forth herein. This opinion is provided pursuant to your request.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of copies of the
following:
(a) The Trust Instrument, dated September 9, 1994, made by the
trustees of the Trust named therein (the "Original Trust Agree-
ment");
(b) The Certificate of Trust of the Trust, dated September 9, 1994
(the "Certificate of Trust"), as filed in the office of the
Secretary of State of the State of Delaware (the "Secretary of
State") on September 9, 1994;
(c) The Written Consent in Lieu Of The Organizational Meeting of The
Trustees of the Trust, dated September 9, 1994;
<PAGE>
To Each of the Persons Listed
on Schedule A Attached Hereto
June 19, 1995
Page 2
(d) The By-Laws of the Trust, dated September 9, 1994;
(e) The Written Consent In Lieu Of A Meeting Of The Trustees Of The
Trust, dated December 9, 1994;
(f) The Certificate of Amendment of the Trust, dated December 5, 1994,
as filed with the Secretary of State on December 9, 1994 (the
"Certificate of Amendment");
(g) The Action In Lieu Of A Meeting Of The Trustees Of The Trust, dated
June 9, 1994;
(h) The Trust Instrument, dated September 9, 1994, as revised on June
9, 1995 (the "Amended and Restated Trust Agreement") (the Original
Trust Agreement as amended and restated by the Amended and Restated
Trust Agreement being hereinafter referred to as the "Trust
Agreement");
(i) The By-Laws of the Trust, dated September 9, 1994 as revised on
June 9, 1995;
(j) The Preliminary Prospectus Dated June __, 1995 (the "Prospectus"),
relating to the offering of Shares of twelve Series of Portfolios
established by the Trust; and
(k) A Certificate of Good Standing for the Trust, dated June 19, 1995,
obtained from the Secretary of State.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned such terms in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed in paragraphs (a) through (l) above. In particular, we
have not reviewed any document (other than the documents listed in paragraph (a)
through (l) above) that is referred to in or incorporated by reference into the
documents reviewed by us. We have assumed that there exists no provision in any
document that we have not reviewed that is inconsistent with the opinions stated
herein. We have conducted no independent factual investigation of our own but
rather have relied solely upon the foregoing documents, the statements and
information set forth therein and the
<PAGE>
To Each of the Persons Listed
on Schedule A Attached Hereto
June 19, 1995
Page 3
additional matters recited or assumed herein, all of which we have assumed to be
true, complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust
Agreement and the By-Laws, constitute the entire agreement among the parties
thereto with respect to the subject matter thereof, including with respect to
the creation, operation and termination of the Trust, and the Trust Agreement,
as amended and restated by the Amended and Restated Trust Agreement, are in full
force and effect and have not been further supplemented or amended, (ii) except
to the extent provided in paragraph 1 below, the due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its organization or formation, (iii) the legal capacity of natural
persons who are parties to the documents examined by us, (iv) that each of the
parties to the documents examined by us has the power and authority to execute
and deliver, and to perform its obligations under, such documents, (v) the due
authorization, execution and delivery by all parties thereto of all documents
examined by us, (vi) the receipt by each person or entity to whom a Share is to
be issued by the Trust (collectively, the "Shareholders") and the acceptance
by the Trust of all consideration validly tendered for such Shares pursuant to
the Prospectus, in accordance with the Trust Agreement, (vii) that the Shares
are issued and sold to the Shareholders in accordance with the Trust Agreement
and the Prospectus. We have not participated in the preparation of the
Prospectus and assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware
(excluding securities laws of the State of Delaware), and we have not considered
and express no opinion on the laws of any other jurisdiction, including federal
laws and rules and regulations relating thereto. Our opinions are rendered only
with respect to Delaware laws and rules, regulations and orders thereunder which
are currently in effect.
Based upon the foregoing, and upon our examination of such questions
of law and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, exceptions and qualifications set
forth below, we advise you that, in our opinion:
<PAGE>
To Each of the Persons Listed
on Schedule A Attached Hereto
June 19, 1995
Page 4
1. The Trust has been duly formed and is validly existing in good
standing as a business trust under the Business Trust Act (12 Del. C. #3801. et
------- --
seg.).
- ---
2. The Shares will represent valid and, subject to the qualifications
set forth in paragraph 3 below, fully paid and nonassessable undivided
beneficial interests in the assets of the Trust.
3. The Shareholders, as beneficial owners of the Trust, will be entitled
to the same limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the
State of Delaware.
We consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Prospectus. We hereby consent to the
use of our name under the heading "Legal Matters" in the Prospectus. In giving
the foregoing consents, we do not thereby admit that we come within the category
of Persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder. Except as stated above, without our prior written
consent, this opinion may not be furnished or quoted to, or relied upon by, any
other Person for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
CDK/DKD/lmh
<PAGE>
EXHIBIT 99.11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Auditors" and to the use of our report dated June 16, 1995, in
this Registration Statement (Form N-1A 33-87254) of Managed Accounts
Services Portfolio Trust (comprising, respectively, PACE Money Market
Investments, PACE Government Securities Fixed Income Investments,
PACE Intermediate Fixed Income Investments, PACE Strategic Fixed
Income Investments, PACE Municipal Fixed Income Investments, PACE
Global Fixed Income Investments, PACE Large Company Value Equity
Investments, PACE Large Company Growth Equity Investments, PACE Small/
Medium Company Value Equity Investments, PACE Small/Medium Company
Growth Equity Investments, PACE International Equity Investments and PACE
International Emerging Markets Equity Investments Portfolios).
/S/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
June 16, 1995
<PAGE>
EXHIBIT 99.13
June 14, 1995
Managed Accounts Services
Portfolio Trust
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
Please be advised that the shares of beneficial interest of PACE Government
Securities Fixed Income Investments, PACE Intermediate Fixed Income Investments,
PACE Strategic Fixed Income Investments, PACE Municipal Fixed Income
Investments, PACE Global Fixed Income Investments, PACE Large Company Value
Equity Investments, PACE Large Company Growth Equity Investments, PACE
Small/Medium Company Value Equity Investments, PACE Small/Medium Company Growth
Equity Investments, PACE International Equity Investments, PACE International
Emerging Markets Equity Investments and PACE Money Market Investments which we
have today purchased from you were purchased as an investment, with no present
intention of redeeming or selling such shares.
Very truly yours,
MITCHELL HUTCHINS ASSET MANAGEMENT INC.
By: /s/ Joan L. Cohen
-------------------------------------
Joan L. Cohen
Vice President and Attorney
